What Happens If You Cannot Pay Off Your Home Equity Loan in the Sale of Your House?

In a time of economic crisis, the American dream of home ownership has all but been abolished. Would-be homeowners are finding themselves in dire straights, facing foreclosures by the thousands, dreading, but not conceiving the consequences of poor financial decisions made. While the majority of middle-class America would like to blame lending institutions for the issuing of “NINJA” loans (no income, no job, approved), the fact remains that a high-credit mentality and the desire to live beyond our means is what’s truly to blame.

It is, after all, our signature that traces across the dotted line to finalize the deed, is it not? We’ve refinanced. We’ve gotten second mortgages. And, most popular of them all, we’ve “qualified” for an amazing HELOC (Home Equity Line of Credit). And to our “dis” advantage, we were able to get a home equity for more than our house was really worth with interest only payments! Only to be followed by an explosive Adjustable Rate Mortgage that took the majority out of play in one fail swoop.

Now the question remains, what happens if you cannot pay off your home equity loan in the sale of your house?

If the economy had not collapsed as it has, most likely you would attempt to short sell your house with the lenders approval. The only downfall is the fact that the lending institution has the right to sue you for the difference. The final result may very well end in you not only losing your home, but having to claim bankruptcy as well. BUT… the government has a plan.

Considering the bail out of lending giants, Fannie Mae and Freddie Mac, with a 700 billion dollar plan to reconstruct economic America, and the overwhelming number of foreclosures plaguing our great nation, change and opportunity is eminent. What happens if you cannot pay off your home equity loan in the sale of your house now? Well, common sense says to hold on to it for a while. There are plans in the making.

First of all, financial institutions are not realtors, nor do they desire to be. They don’t like the idea of owning thousands of vacant homes that they can’t sell due to a lending freeze. Every house that they “own” represents hundreds of thousands of dollars in assets that they don’t have in liquid cash. If you’re facing foreclosure, trying to sell, and wondering what happens if you cannot pay off your home equity loan in the sale of your house, do yourself a favor. Contact your lender and ask for a grace period. Tell them that, like many others, you’re facing financial hardships, but you plan to make good on your loan. More likely than not, they’ll grant you some time. Now may even be a good time to renegotiate your loan for a lower, fixed-rate loan. If that approach is too hands on for you, consider the following information.

Both presidential candidates have disclosed their plans to buy off the lending institutions “bad loans” in efforts to re-evaluate the value of homes that are in distress and refinance the “true market value” of the homes to the homeowners. Another plan was to forgive up to $30,000 of the mortgage to relieve some of the financial pressure, tagging along with it the obligation to live in the house for a set amount of years to avoid penalties.

While these plans sound great, there’s no evidence that it will actually come to fruition or be mentioned again after the election. We can hold our breath until we turn blue, or we can be proactive and try to turn a negative into a positive with a phone call.

What happens if you cannot pay off your home equity loan in the sale of your house? First ask yourself this question. Do you “want” to sell the house? Or would you prefer to keep it and make it work. If you prefer to keep it, work things out with the lender. They’re hurting just as bad as you are. You’ll be surprised at what can result from a simple phone call.