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Can the home equity lender foreclosure on my home if there is no equity?

Here is a question I am asked at least 2 to 3 times a week.  “I have both a mortgage and a line of credit on my home. If I default on the line of credit, can they foreclose on my home?  I am trying to refinance the first mortgage but no one will do it because the value of my house is about equal to the value of my mortgage and credit line debt. “

Answer: a loan secured against your home can always foreclose if they are not paid or some other default under the contract (deed of trust).  Many people seem to think that a home equity line of credit “HELOC” or line of credit, or second mortgage, cannot foreclose if they are not paid.  I am not sure where they get this idea, but it is pervasive, even among some realtors.  So, let’s set the record straight.  If you sign a Deed of Trust, Agreement for Sale or Mortgage the lender has a lien on your home.  If you do not pay the lien then the lender has a right to foreclose on the property.  The lender may also have a right to sue you for any losses.  I say “may” because the law of the state where the property is located will control.

A lender will not refinance unless the house is worth significantly more than you owe.  Since you owe on both the first and second loans, then the house must be worth at least 20% more.  That percentage could change depending on the type of loan.

We have several videos on our web site.  Below are a few that might be of interest:
  • “Lender’s Foreclosure Rights in Arizona”
  • “Should I keep my home or let it go into foreclosure?”
  • “Meet Ms. Drain and Suggestions on How to Hire an Attorney”

MUSINGS BY DIANE: “So, please talk to a good real estate attorney who is familiar with the foreclosure process in the state where the real property is located.  Do not just assume that you know the law.  Do not take advice from your realtor or best friend.  This is a situation that could haunt you for many, many years.”

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Diane L. Drain

Diane L. Drain, bankruptcy attorney, retired law professor, mentor and community spokesperson.

About Diane Drain:

Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

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*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Any information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*

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