Carlsbad’s frozen home equity lines
August 21st, 2008 Categories: Carlsbad Business Community, Carlsbad Real Estate
CARLSBAD-The turn in the housing market has created a collapse in what some homeowners were hoping could be their emergency parachute; the home equity line.
The home equity line is defined as a method of borrowing in which a homeowner may borrow against home equity as needed using a checkbook or credit card. In there in lies the problem. We homeowners have lost our equity.
As a REALTOR, my income obliviously can fluctuate greatly. With the negative turn in the economy, I have at times viewed my equity line as a security blanket that I could tap in to in a worst case scenario. About 2 months ago I received notice in the mail that my equity had been frozen which actually makes me one of the fortunate.
There are situations where the money is being spent over time in for a single event such as college tuition for children or remodeling projects. In these situations the homeowner signs a long term agreement makes a payment or two and then are notified that the equity line has been frozen which is completely legal.
“Theoretically, you could have people writing checks and spending money they should not be spending. You can appeal. The No. 1 priority is to make sure that loan doesn’t default.”
Mark Goldman, a real estate finance instructor at San Diego State University, said it makes no sense for banks to notify borrowers before they reduce their line of credit.
“Of course they aren’t going to call you up and say we’re taking a look at your loan,” he said. “The borrower, upon receiving that notice, would likely draw down the remaining available balance on the home-equity line.” – San Diego Union Tribune, 8/21/2008
While I believe in honesty in all situation, if you think you may have to tap into your equity line, I would access all the money at once. To offset some of the interest costs, open a CD with the funds. This way you know you have necessary funds.
While the linked article states to periodically check with your lender to find out what your available credit is, I am not sure that is the best advice. Sometimes getting your information to percolate to the top of the stack can only lead to bad things.
As stated by Mark Goldman, “It makes no sense for the bank to notify borrowers….”, I would follow the financial institution’s protocol with the reversal of the placement of the words bank and borrowers.
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