Subject to Equity line of Credit? - Posted by SB Wells (NY)

Posted by Tom Kirby (p.a) on September 20, 2004 at 20:44:06:

Jim, one question:What do you do with the property? If you L/O and rates and taxes go up doesn’t that cut into your cash flow? A HELOC has an ajustable interest rate,right?
Thanks, Tom

Subject to Equity line of Credit? - Posted by SB Wells (NY)

Posted by SB Wells (NY) on September 20, 2004 at 09:33:47:

Is it possible to acquire a property subject to an equity line of credit or is it necessary to have the homeowner “term out” the financing?

Thanks for all insights shared.

SB WELLS (NY)

Re: Subject to Equity line of Credit? - Posted by Jim FL

Posted by Jim FL on September 20, 2004 at 14:50:43:

SB,
Yes, you can buy properties subject to the existing financing, when some of that financing is a Home Equity Line of Credit.
The thing is, as mentioned before, the sellers would have access to this line of credit.
In addition, lenders do call these due at times, so its best to be careful.
The way I handle that is to simply have the sellers close out the line of credit portion, leaving the existing balance in place.
This stops the barrowing from that lender on that line in the future, and allows you to treat the equity line as a regular loan.
Then just make the payments on it, and everything should be fine.

The seller might have to call the lender to get a form to close the account line out, but it can be done.

Good luck,
Jim FL

Re: Subject to Equity line of Credit? - Posted by Russ Sims

Posted by Russ Sims on September 20, 2004 at 13:52:05:

It’s certainly possible. We did one last winter. Your main concern is that the seller has access to that line of credit and can continue to borrow against the home long after you purchase it from them ‘subject to’.

Our solution? We simply use the bank issued checks from that line of credit to pay down higher interest financing elsewhere. We keep the LOC maxed out so the seller can’t borrow from it. We use the 4.5% money to pay down some second mortgages with interest around 9%. This works for us.
Russ

Re: Subject to Equity line of Credit? - Posted by SB Wells (NY)

Posted by SB Wells (NY) on September 20, 2004 at 21:50:46:

Jim,

Thanks for the practical advise. I was concerned that it was necessary to force the homeowner to refinance the HELOC into another type of note.

Have you met with any resistance from the seller(s) when you informed them that they had to close the line out? Does closing the HELOC raise any flags with the lender that may jeopardize the subject to deal?

Thanks again for the insights.

SB Wells (NY)