Home Equity Line of Credit (HELOC) Freeze
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What Is a HELOC Freeze?
HELOC stands for Home Equity Line of Credit, which is a line of credit that is backed by the borrower’ home equity as collateral. These are major lines of credit, often with higher borrowing limits and lower interest rates. They can be similar to loans due to the fact that the credit line is backed by such a valuable asset as the person’s home. As such, they are often only reserved for major expenditures like children’s education funds or medical expenses.
A HELOC freeze occurs when the lender prevents, limits, or suspends the borrower’s access to the credit line for various reasons. Under such conditions, the borrower won’t be able to access their credit, or the amount they can take out may be limited. These depend on the overall conditions of the situation.
When Is a HELOC Freeze Imposed?
A HELOC freeze is typically imposed when:
- The home has suffered a loss in value (this is determined through appraisal of the home)
- The lender has a reasonable belief that the borrower won’t be able to make upcoming payments
- The borrower has experienced (negative) changes in their credit ratings (this often indicates more risk on the part of the lender)
A HELOC freeze may also occur for other reasons, such as statutory violations like home equity fraud or other types of misrepresentation with home.
Can I Contest a HELOC Freeze?
In some cases, it is possible to contest a HELOC freeze, especially if there have been sudden changes that conflict with your original contract agreement. Also, contesting a freeze can be necessary for instance if there has been evidence of misrepresentation or fraud on the lender’s part. Most courts tend to uphold freezes where the home has depreciated beyond 50% of its original value. If it is within this range, a court may support a borrower’s request to undo a freeze.
Should I hire a Lawyer for Help with a HELOC Freeze?
HELOC arrangements can often provide a person with reliable and sound sources of financing. However, they are subject to very specific rules and regulations, which might differ by state. You may wish to hire a qualified attorney near you if you have any conflicts or concerns regarding a HELOC freeze. Your attorney can provide you with legal advice and can determine whether you have viable cause of action. There have been some class action cases regarding HELOC freezes; your lawyer can provide you with legal representation in the event that you need to attend court proceedings.
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Last Modified: 12-22-2014 04:09 PM PST
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