Q: Do you think banks will cut off all equity lines of credit? We have an established equity line set with a major bank. The bank also holds our mortgage.
With the economic uncertainty and most of my income coming in the form of a commission, we may have to dip into our existing equity line of credit for living expenses.
We hope this won't be the case, but we're worried that our bank will cut off our line of credit.
A: Banks and mortgage companies have already begun to shut off home equity lines of credit. The bank's ability to shut off the line of credit should be set forth in the loan documentation for the line of credit.
When lenders shut off home equity lines of credit, they either close the line of credit completely, or they lower the amount of credit available, based on the lender's understanding of how much home values have declined in a particular neighborhood.
You should review your home equity line of credit documents to determine if the paperwork gives the lender any right to cancel the line of credit.
If you are depending on this cash for a possible economic lifeline, I'd think seriously about drawing down at least some of it now, to keep the line open and active. Also, be sure to renew the line of credit on time. Often, you'll pay a fee of $30 to $50 per year to keep your home equity line of credit (HELOC) open. If you're late with that payment, you might find your HELOC shuttered.
But in general, I don't think banks and mortgage lenders will close off all home equity lines of credit.
There may be many different circumstances that impact the bank's decision to cut off or limit a line of credit. Some of these issues may involve what real estate values have done in your area, the problems the bank is having in the local real estate market, and any negative credit information the bank receives about your finances.
If your credit is good, your property value has not decreased, the balance on your main mortgage loan and the balance on the home equity line of credit are lower relative to home value than the norm, and you live in an area that has not been hit hard by other foreclosures, even if your current lender cuts your equity line of credit I believe there will be others in the neighborhood that would be delighted to have your business.
Q: In one of your articles you wrote about transfer on death (TOD) deeds not being accepted for real estate in Florida. As a Florida resident, I have some further questions concerning this matter.
I live in a mobile home. It is a resident-owned park where we the residents all own the park. We buy shares in it when we become a resident. On the title for my mobile home, I have a TOD on it. There is no mortgage on the home. I also have other assets recorded in the same manner.
My question is: Does a TOD apply only to real property and not mobile homes?
A: There are two basic types of property: personal property, including items like furniture, artwork, stock certificates and bonds; and, real property, which refers to real estate. If you own the land on which your mobile home sits, and it is permanently attached to the land, it is considered real property. But if your mobile home sits on a rented lot, it is considered personal property.
Many states have passed TOD (transfer on death) laws for personal property like stock certificates, bank accounts, etc. But only a handful of states permit real property to be transferred in this way.
I'm not sure why this is. It's an easy and inexpensive way to transfer property upon someone's death. I do know that there is a movement to study this issue further so perhaps over the next few years more states will adopt this code.
For more details, please talk to a real estate attorney or estate attorney.
Q: My wife and I are getting a divorce, and we live in Florida. She wants to remove her name from our mortgage so she can go out and purchase a home of her own without being financially tied to this home. Is a quitclaim deed the way to go?
A: In general, you can remove someone's name from a mortgage only by refinancing the loan, paying the loan off by selling the property or by using cash. In rare cases, you can petition the bank to have one of the borrower's names removed from the loan. A quitclaim deed would only remove her name from the ownership of the home but not from the obligation she has under the mortgage.
If you decide to refinance the loan to remove her name from the mortgage, at the time of the closing of the loan, she could quitclaim her ownership interest in the home to you as she is removed from the burden of the mortgage.
Some title companies and closing agents will help you prepare the quitclaim deed when you refinance the home. But in other states, you might need to do it yourself or hire a real estate attorney to prepare the documentation.
To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.
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