Home Buying in Bellevue>Question Details

Mvaquino73, Home Buyer in Bellevue, WA

MY HELOC was transferred to collection agency .Is HELOC a permanent debt even if the house is sold or foreclosed.?

Asked by Mvaquino73, Bellevue, WA Mon May 7, 2012

Do debt collection agency do loan mod?

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9
Mvaquino,
Many HELOCs and other second mortgages require you to sign a Promissory Note, which does survive foreclosure. In a sale you would have to have them agree to accept a payoff of whatever can be negotiated to release the Title for transference.
If you sell, you will need to settle with both lenders and any other lien holder to transfer the Title. If the home is foreclosed, Jr. Liens can follow you. Your exact situation should be reviewed by an attorney as so many have suggested. You have a lot at stake here, don't rely on your own research or a message board.
1 vote Thank Flag Link Mon May 7, 2012
Mvaquino73 you have two different scenarios. 1st if the house is sold (I assume as a short sale) and 2nd if the home is foreclosed on.

In the 1st scenario it is a negotiation between you and your lender. A short sale can leave you with or if professional negotiated without a deficiency (the remaining debt).

In the 2nd scenario it depends who forecloses. WA state is a non recourse state, more commonly explained is that the position that forecloses gets what they get at auction and cannot pursue the deficiency. However, junior liens (ie helocs and second mortgages) that are forced to release their lien, they can pursue if they choose to. How will you know? they have 6 years to pursue and if they do and they win, they can take the next 10 years to collect and with simple paperwork they can extend that 10 more years.

I am happy to answer any questions if you would like to call me 360.908.1038 or view online at http://www.vreg.co/shortsale
Web Reference: http://vreg.co/shortsale/
0 votes Thank Flag Link Tue May 8, 2012
I would try & negotiate the debt down as much as possible. They could foreclose on your home, but only if they pay off the first & they are only likely to do this if there is a lot of equity in the property.
0 votes Thank Flag Link Mon May 7, 2012
I have a great attorney to refer you to who could answer those questions for you. Her name is Michele McNeill in Bellevue. Her website is http://www.skylinelaw.com.
Web Reference: http://www.skylinelaw.com
0 votes Thank Flag Link Mon May 7, 2012
As others have noted, you need to consult an attorney, because this is a legal question. Also as others have noted, a HELOC is typically secured by a deed of trust, almost always in junior position to other debt. There is recent Washington case law holding that foreclosure by a first mortgage does not release the unpaid debt on junior mortgages, but that doesn't mean you don't have any defenses. You should have an attorney review your HELOC paperwork.

As to your comment about a house being sold, it would typically be difficult to sell a house without paying off or otherwise dealing with the HELOC. If that happened somehow, that also would be something to talk to about with an attorney.

Finally, collection agencies probably don't do what we think of as loan modifications (I've never heard of that), but what they will do is set up payment terms and compromise debt. They're all about collecting debt, and sometimes that means accepting pennies on the dollar. Something else to talk to that attorney about.
0 votes Thank Flag Link Mon May 7, 2012
What is the repayment status of your HELOC? Are you current on the payments or in default? Give me a little more information and I can help you understand your situation.
0 votes Thank Flag Link Mon May 7, 2012
Sorry, I meant Don...please excuse me!

Jim
0 votes Thank Flag Link Mon May 7, 2012
I agree with Tom, its best to consult your attorney. That being said, a HELOC is a second trust, and if the home is sold, to get a clear title to the new buyer, the HELOC is paid off as well. In a foreclosure, they may or may not get their money, and might seek to get it through collections.
I doubt the collection company has the ability to do a loan mod. However, the original lender may still work with you, and pull the collection back to do so. Try contacting the original lender yourself or with the help of your attorney.

Best wishes, Jim
0 votes Thank Flag Link Mon May 7, 2012
Think of HELOC as a second mortgage. That's basically what it is. It's a debt secured by the property.

Debt collection agencies don't do loan modifications. However, you might be able to negotiate the debt down, just as you can try with any other debt turned over to a collection agency. (I've never heard of a HELOC being turned over to a collection agency, but I guess it's possible.)

One other thing: Since a HELOC is a lien on the property, the collection agency would have the right to foreclose on your property.

For more details, check with a lawyer.
0 votes Thank Flag Link Mon May 7, 2012
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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