Lender forgot to close HELOC

Archived From: Finance
  • Page :
  • 1
  • Text Only
Voting History
rated:
We sold our house nearly 3 months ago. I happend to logon and see the HELOC appeared to not be closed (1st mortgage and HELOC were different banks). The HELOC lender was contacted by title and asked to send in a payoff. I know this because I had to pay back part of the closing costs because I closed the line before 36 months and got free closing costs originally. The title company asked me to review to make sure I agreed. So sale of house closed, 1st mortgage was paid off and recorded. No signs of a recording for HELOC, and the line is still available. Technically that HELOC is in first position over the new owners.

I did a test transfer to my external account and it worked. Should I used more of it? I FULLY INTEND TO PAY IT ALL BACK. I'M NOT LOOKING FOR FREE MONEY HERE.(but I'd want it for a few years) But a $100k line at prime is nice to have.

What happens if they figure out I've used the line in a few months? I don't own the collateral anymore. I'd imagine title insurance for the owners would step in.
Could they demand I pay it back immediately? Whats their recourse? Would they be forced to convert it to an unsecured line?
 

Member Summary
Most Recent Posts
Title searches are far from perfect, and have first hand experience with this.
https://www.fatwallet.com/forums/finance/1... (more)

SummerSoFar (Jul. 28, 2016 @ 8:58p) |

Absent some longshot fluke happening, if it was missed this time it's likely to be "missed" indefinitely unless/until OP... (more)

Glitch99 (Jul. 28, 2016 @ 9:19p) |

You can draw from the credit line, but you are still personally liable to pay it back.  You signed a promissory note in ... (more)

RidicuRuss (Jul. 29, 2016 @ 2:12p) |

Staff Summary
  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

I have no idea what the consequences would be, but it strikes me as a bad idea.

Best case scenario? They probably assume you made a mistake, contact you and ask you nicely to give the money back or move the HELOC to your current property.

Worst case? They come after you (the bank or the current homeowners) for fraud or something. Or just secretly record 2nd mortgage on your new house without telling you...


If title insurance "stepped in", who do you think they are going to come after once they pay?

Yeah, this is a bad idea. Just doing the test transfer was a bad idea. It shows that you have some sort of intent, regardless of dollar amount. This thread is also a bad idea (just in case). Don't touch it; notify the lender; move on with life.

panmet69 said:   Best case scenario? They probably assume you made a mistake, contact you and ask you nicely to give the money back or move the HELOC to your current property.

Worst case? They come after you (the bank or the current homeowners) for fraud or something. Or just secretly record 2nd mortgage on your new house without telling you...


If title insurance "stepped in", who do you think they are going to come after once they pay?

  Honestly, I wouldn't mind if they wanted to just move it to my new property...when they figure it out. I don't see how this is fraud in any way. Line is available and I use it. Its negligance or stupidity on the lender's part. I can always play dumb, say it was force of habit.
If title insurance stepped in I'd fully expect they'd come after me, but what I'm wondering is if they can demand payment in full (again whats their recourse) or if I'd have to be allowed to pay it back at the terms of the HELOC (which I wouldnt mind).
 

zimma13 said:   Its negligance or stupidity on the lender's part.
 

  
It would be negligent for me to leave the door to my house unlocked, but that's not a valid defense for the burglar.
 

This is a dick thing to do to the new owners. Enough said.

Why can't you just apply for a new HELOC on your new property. If you get similar terms, you now have the same thing you would have had if the lender moves the current HELOC from your old property to your new property. There's no rush with any of this. Take a swing and watch to see how far the ball goes.

zimma13 said:   
panmet69 said:   Best case scenario? They probably assume you made a mistake, contact you and ask you nicely to give the money back or move the HELOC to your current property.

Worst case? They come after you (the bank or the current homeowners) for fraud or something. Or just secretly record 2nd mortgage on your new house without telling you...


If title insurance "stepped in", who do you think they are going to come after once they pay?

  Honestly, I wouldn't mind if they wanted to just move it to my new property...when they figure it out. I don't see how this is fraud in any way. Line is available and I use it. Its negligance or stupidity on the lender's part. I can always play dumb, say it was force of habit.
If title insurance stepped in I'd fully expect they'd come after me, but what I'm wondering is if they can demand payment in full (again whats their recourse) or if I'd have to be allowed to pay it back at the terms of the HELOC (which I wouldnt mind).
 

  
Go re read the entire HELOC contract in full and see if you've done anything against that contract.    I think its a safe bet that the contract has clauses that don't allow you to do what you're doing.  The contract is all about the property you sold.   Its going to be voided in this case.    I wouldn't be at all surprised if you were even technically responsible for alerting the bank that you moved.

Its gonna be fraud since your borrowing against a house you don't own.   Thats deceptive.   Just cause they screwed up doesn't make it all ok.

 

Once they find out that you've using the HELOC and not owning the property any longer, they'll close the acct and ask you to pay it back in full.  If you fail to pay it all back within a reasonable time, they'll place the entire balance in collection and will be reported to credit bureaus. 

delete

jerosen said:   
zimma13 said:   
panmet69 said:   Best case scenario? They probably assume you made a mistake, contact you and ask you nicely to give the money back or move the HELOC to your current property.

Worst case? They come after you (the bank or the current homeowners) for fraud or something. Or just secretly record 2nd mortgage on your new house without telling you...


If title insurance "stepped in", who do you think they are going to come after once they pay?

  Honestly, I wouldn't mind if they wanted to just move it to my new property...when they figure it out. I don't see how this is fraud in any way. Line is available and I use it. Its negligance or stupidity on the lender's part. I can always play dumb, say it was force of habit.
If title insurance stepped in I'd fully expect they'd come after me, but what I'm wondering is if they can demand payment in full (again whats their recourse) or if I'd have to be allowed to pay it back at the terms of the HELOC (which I wouldnt mind).

  
Go re read the entire HELOC contract in full and see if you've done anything against that contract.    I think its a safe bet that the contract has clauses that don't allow you to do what you're doing.  The contract is all about the property you sold.   Its going to be voided in this case.    I wouldn't be at all surprised if you were even technically responsible for alerting the bank that you moved.

Its gonna be fraud since your borrowing against a house you don't own.   Thats deceptive.   Just cause they screwed up doesn't make it all ok.

 

  I've read the contract. It doesn't contemplate something like this. Yes it says they are taking security interest in the property, but this scenario is a bit odd. I alerted the bank that I moved... a title company called them and said "hey he's selling the property, send us a payoff statement" and the title company sent a check. I also updated my new address on their website as well (to get tax statements next year). Short of going to their offices and holding a big old sign up in the parking lot, what else should I do? (yes call, but my point is it should be rather obvious from the series of events what they should have done)

btw its "you're"

I appreciate everyone's candid feedback. I just wanted to see what the collective FW community thought. A guy posted a similar thread in 2011, but he was still in the house and everyone said pull the money out and run. Interesting how different the responses are now. Also, the new owners did buy owners title insurance, they wouldnt be screwed by any means and Ilike I said I'd pay it back.

DTASFAB said:   Why can't you just apply for a new HELOC on your new property. If you get similar terms, you now have the same thing you would have had if the lender moves the current HELOC from your old property to your new property. There's no rush with any of this. Take a swing and watch to see how far the ball goes.
  because I just maxed out my DTI buying the new house! But I put down over $200k on the new house, so if I used the HELOC and then they asked to attach to the new house...I wouldn't mind, I just know I won't qualify for a few years otherwise.

SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.
 

  I agree, partially. The only way this affects them is if they try to sell or refinance or take out an equity line. When rates go up they won't refi. They didn't put much down at all so they wouldnt even qualify to take out any sort of equity line anytime soon. my original thought was to not use more than I could pay back if the issue came up anyway.

zimma13 said:   SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.I agree, partially. The only way this affects them is if they try to sell or refinance or take out an equity line. When rates go up they won't refi. They didn't put much down at all so they wouldnt even qualify to take out any sort of equity line anytime soon. my original thought was to not use more than I could pay back if the issue came up anyway.So you would have no issue with the previous owner of your current house using your house for collateral on their HELOC?
  

OP, you're being defensive, trying to justify or rationalize some shitty behavior on your part. I think everyone collectively agrees this is an all-around bad idea. Don't continue to seek approval from us anymore. You're not going to get it.

Your spelling and grammar corrections are pretty petty too.

zimma13 said:   
SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.
  I agree, partially. The only way this affects them is if they try to sell or refinance or take out an equity line. When rates go up they won't refi. They didn't put much down at all so they wouldnt even qualify to take out any sort of equity line anytime soon. my original thought was to not use more than I could pay back if the issue came up anyway.

  I'm pretty sure you are toeing on the line of breaching a contract you have with the buyers. I don't think you can go around telling random people buyer information, or information about their mortgage terms, the transaction, etc.

Didn't you write a warranty deed to the buyers? If so, I imagine you have a duty to perfect the title for them, which means getting the HELOC release recorded.

zimma13 said:   
jerosen said:   Its gonna be fraud since your borrowing against a house you don't own.   Thats deceptive.   Just cause they screwed up doesn't make it all ok.

 

...
btw its "you're"
...

 After your grammar correction of someone trying to help -- here is my advice:

You are free and clear at this point, because of the closing/bank clerical errors and you are entitled to draw funds on the line even though you don't own the collateral any more. 

They (the bank) will have no recourse to come after you personally because the loan was collateralize on the property.

Enjoy your new found wealth.

Yeesh. I guess we're stooping there now, huh quaters?

zimma13 said:   
btw its "you're"

 

  
You happend to notice that did you?

Should I used more time to check my grammar?

 

jaytrader said:   Yeesh. I guess we're stooping there now, huh quaters?
  I thought it was appropriate sarcasm and exactly what the OP wanted to hear too   

quaters said:   
jaytrader said:   Yeesh. I guess we're stooping there now, huh quaters?
  I thought it was appropriate sarcasm and exactly what the OP wanted to hear too   

  LOL well you're a schmuck! OP wants to hear that it's perfectly alright for them to use the $100k HELOC that is secured by an asset they no longer own. DUH!

Penfed?

vquasarv said:   Penfed?
  
I'm curious now too.

I will anxiously await the thread "Bank wants me to pay back $100,00 secured by home I no longer own. I spent the money and have no means to pay it back"

OP, I LOVE your plan! At the end, you'll even get a FREE trip to the "country club" as some call it.

alamo11 said:   OP, I LOVE your plan! At the end, you'll even get a FREE trip to the "country club" as some call it.
  
Or maybe OP is onto something and this is the arbitrage to end all arbitrage.

1) Borrow against asset I don't own
2) ???
3) Profit!

IMHO only - not legal advise - please proceed on your own risk (just in case you later say I did not warn you and therefore I am at fault for your irresponsible/fraudulent actions):
You should continue doing what you are doing. Bring in s much money as you can. Also spend it so that they cannot get it back. Find out what happens and please keep us updated. Also hope no one does this on your property. If they do, please keep us updated as well.

hmm... Take the money and buy gold but say you spent it at the casinos. Wasn't the plan for another poster years ago?

It's a dick thing to do, but I doubt the bank will come after you. They have a first position lien so they aren't at any risk. The title insurance company will end up paying out to the new owners and they will probably come after you.

I don't know why OP is so excited to find out that he is likely in breach of his sale contract. You know, the part where you almost certainly agreed to provide a warranty deed (i.e., clear title)? If I were you, I would be demanding the HELOC be terminated and a release be recorded so I would not face the risk of damages that the buyer could seek if anything bad happens to to him (e.g., trouble with his lender, inability to get an equity loan).

OP will likely say again that it's everyone else's fault because they should have checked. It's too bad that isn't actually a defense to breach of contract claims.

It's been a while since I have looked at a note for a HELOC, but I'd be willing to bet that he is breaching more than one provision. Typically, a draw on the HELOC requires you to "bring down" (or make) the same representations you made when you took out the HELOC. Ownership of the asset securing the HELOC is probably one of those representations. If you are breaching the terms of the HELOC note, then the lender will declare you in default, which usually accelerates the loan and triggers immediate payment of all amounts borrowed, plus interest and any fees.

Again, lender incompetence is not a defense to the default under the HELOC agreement. They did screw up, but that doesn't mean OP benefits.

Finally, there probably is a good case for fraud even though proving fraud won't be needed because there is already a breach of the HELOC and sales contracts. However, I do want to point out that having an innocent excuse that they can't prove is incorrect (e.g., I forgot and accidentally drew on the HELOC) does not mean that fraud could not be pursued. You would have to convince a judge or jury that they should believe you, which may be hard with such a flimsy excuse. Also, it would be easy to prove that you don't regularly make HELOC withdrawals every month in the amount of $100, so your excuse is even more ridiculous. Of course, fraud is unlikely to ever come up unless OP takes out a bunch more money, doesn't pay it back and then files bankruptcy. Even then, it may not be worth pursing, but it probably wouldn't be that hard to prove if a creditor or bankruptcy trustee did want to pursue it.

zimma13 said:   
 

btw its "you're"

 

  
btw it's "it's"

I once quit a job and kept getting paychecks after my term date. I notified them promptly several times and eventually the checks stopped coming. I think you need to act in good faith when you benefit from an error. I did, and they did not bother asking me to refund the amounts I received.

SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.
  I'd assume at this point it either wasnt recorded, or the lien was released.  Otherwise the buyer would've had issues.

zimma13 said:   
jerosen said:   
zimma13 said:   
panmet69 said:   Best case scenario? They probably assume you made a mistake, contact you and ask you nicely to give the money back or move the HELOC to your current property.

Worst case? They come after you (the bank or the current homeowners) for fraud or something. Or just secretly record 2nd mortgage on your new house without telling you...


If title insurance "stepped in", who do you think they are going to come after once they pay?

  Honestly, I wouldn't mind if they wanted to just move it to my new property...when they figure it out. I don't see how this is fraud in any way. Line is available and I use it. Its negligance or stupidity on the lender's part. I can always play dumb, say it was force of habit.
If title insurance stepped in I'd fully expect they'd come after me, but what I'm wondering is if they can demand payment in full (again whats their recourse) or if I'd have to be allowed to pay it back at the terms of the HELOC (which I wouldnt mind).

  
Go re read the entire HELOC contract in full and see if you've done anything against that contract.    I think its a safe bet that the contract has clauses that don't allow you to do what you're doing.  The contract is all about the property you sold.   Its going to be voided in this case.    I wouldn't be at all surprised if you were even technically responsible for alerting the bank that you moved.

Its gonna be fraud since your borrowing against a house you don't own.   Thats deceptive.   Just cause they screwed up doesn't make it all ok.

 

  I've read the contract. It doesn't contemplate something like this. Yes it says they are taking security interest in the property, but this scenario is a bit odd. I alerted the bank that I moved... a title company called them and said "hey he's selling the property, send us a payoff statement" and the title company sent a check. I also updated my new address on their website as well (to get tax statements next year). Short of going to their offices and holding a big old sign up in the parking lot, what else should I do? (yes call, but my point is it should be rather obvious from the series of events what they should have done)

btw its "you're"

I appreciate everyone's candid feedback. I just wanted to see what the collective FW community thought. A guy posted a similar thread in 2011, but he was still in the house and everyone said pull the money out and run. Interesting how different the responses are now. Also, the new owners did buy owners title insurance, they wouldnt be screwed by any means and Ilike I said I'd pay it back.

  I think the immediate issue will be your lack of homeowner's insurance raising a flag, since as a named beneficiary they will be notified of the policy's cancellation.  If there were going to be issues for the buyer, it would've already happened when their mortgage couldnt be recorded in the first position.

Frankly, I'm kind of hoping to pull off this same thing should I sell my house this fall.  The realistic worst-case is having to repay the balance on demand.  If nothing's happened yet, the LOC could easily linger there for your use forever (or until the draw period expires).  I wouldnt sweat it, just make damn certain you dont get stuck unable to pay it off.

Glitch99 said:   
SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.
  I'd assume at this point it either wasnt recorded, or the lien was released.  Otherwise the buyer would've had issues.

  
Title searches are far from perfect, and have first hand experience with this.
https://www.fatwallet.com/forums/finance/1154800/
 

SummerSoFar said:   
Glitch99 said:   
SummerSoFar said:   This is a dick thing to do to the new owners. Enough said.
  I'd assume at this point it either wasnt recorded, or the lien was released.  Otherwise the buyer would've had issues.

  
Title searches are far from perfect, and have first hand experience with this.
https://www.fatwallet.com/forums/finance/1154800/

  Absent some longshot fluke happening, if it was missed this time it's likely to be "missed" indefinitely unless/until OP does something to bring it back to the forefront.  This is a parcel-specific thing, unlike your issue that was involving a large piece of property that has since been divided countless times.

quaters said:   

You are free and clear at this point, because of the closing/bank clerical errors and you are entitled to draw funds on the line even though you don't own the collateral any more. 

They (the bank) will have no recourse to come after you personally because the loan was collateralize on the property.

Enjoy your new found wealth.
 

  You can draw from the credit line, but you are still personally liable to pay it back.  You signed a promissory note in addition to granting the bank an interest in the collateral.  At best, if the bank messed up and let the collateral be sold out from under them, then the credit line would just be an unsecured loan.  They would have the same recourse as if you didn't pay your credit card.



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2017