Tuesday, February 3, 2009

What the HELOC?

Our primary underwriter, Title Resources Guaranty Company, sends out a quarterly newsletter which features a great article called "Stump the Underwriter." In it underwriting attorney Paul McNutt poses scenarios - very real ones - which can affect title if not properly disposed of. I will periodically use this space to present a scenario, then discuss the solution.

Situation: Seller has - in addition to a first mortgage - a Home Equity Line of Credit (HELOC), which the title company pays off at closing. Title company never gets a release. Can this lead to a title issue? Can the borrower make another draw after the sale?

[intentionally blank thinking space]

Answer: Yes and Yes! Payment of HELOC loans without also obtaining an agreement by the lender to cancel the line-of-credit as signed by the borrower on the lender's (or title company's) form can certainly present future problems. Paying off the current balance is not enough...there must be sufficient written evidence that the line is closed and no future checks or debit withdrawals can be made against the account. Distinguish from a term mortgage or deed of trust where there are no draws against the balance - once paid off the lender is obligated to discharge the debt.