When a title search is done prior to closing, it will return any mortgages or liens that appear in the public records that must be satisfied in order to close and convey marketable title to the new purchaser. Aside from mortgages, a common item to show up on the title search will be a seller’s home equity line of credit, often referred to as a HELOC.
A home equity line of credit is a loan taken out against the value of a home. The homeowner can take out a lump sum or potentially make draws on this line of credit as needed up to a predetermined amount. It is important to note that this line of credit is still attached to your real property and must be paid off in full in order to close. It is a common misconception that this home equity line of credit is not a mortgage on real property and follows the seller as opposed to the property, or that it simply attaches itself to the sellers new home. Neither of these is the case. So when a net sheet is drawn up to estimate seller proceeds, the balance on a home equity line of credit should be accounted for.
If a seller has a home equity line of credit, it is important that they cease taking any new draws on it immediately if they are under contract to sell. Any checks associated with the account should be destroyed as well as any debit card attached to the account. No buying those Christmas presents on that line of credit card! Using an equity line close to closing time could mean insufficient amounts collected at closing and failure to remove this lien from the property which will not make for very happy holidays for the buyer or seller.
As always, if you have any questions about the foregoing or issues affecting title, we encourage you to contact your local real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Jessica Featherstone, ESQ. firstname.lastname@example.org
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