What Happens to Your Home Equity Line of Credit When You

Default could cause the lender to sell your home.

Default equals foreclosure, which means you lose your home. A home equity line of credit is just a line of credit secured by a lien on your home. Essentially, a home equity line of credit is just like a second mortgage loan. Default under the home equity line of credit allows the lender to foreclose and sell your home.

Lien

When you apply for and receive a home equity line of credit, the lender will require you to sign a mortgage or trust deed, both of which are legal documents that give the lender a lien on your home. The lien is the lender's remedy if you default in your repayment on the line of credit. The lender exercises that remedy by carrying out foreclosure after you default.

Notice

The first thing that happens when you default on your home equity line of credit is that the lender will send you a Notice of Default and Election to Sell. This Notice of Default is a formal letter that initiates the foreclosure process. The Notice of Default points out that you have breached your repayment obligation and that the lender intends to sell your home in foreclosure.

Acceleration

The Notice of Default also accelerates the home equity line of credit, which basically means that the lender is now demanding payment in full on the line of credit. Instead of paying the line of credit off over time, after acceleration you must pay off the full amount of the outstanding balance on the line of credit immediately in order to avoid foreclosure.

Foreclosure Sale

Three to six months, depending on state law, after sending the Notice of Default, the lender then has the right to send a notice of a foreclosure sale. The foreclosure sale is a public auction where a third party, called a trustee, sells your home to the highest bidder and then uses the money earned to pay off the home equity line of credit. Any excess sales proceeds will be refunded to you.

Eviction

After the foreclosure sale, you no longer have a right to occupy the home. If you try and remain in the home, either the lender or the new owner who purchased the home at the foreclosure sale can file an eviction lawsuit and have the sheriff remove you from the home. Eviction means the sheriff forcibly removes you and your possessions from the home.

Warning

Default on a home equity line of credit is every bit as serious as defaulting on a primary mortgage loan. You stand to lose the very home that secures the line of credit. It should go without saying, then, that default should never be an option.

About the Author

The Constitution Guru has worked as a writer and editor for "BYU Law Review" and "BYU Journal of Public Law." He is an experienced attorney with a law degree and a B.A. degree in history with an emphasis on U.S. Constitutional history, both earned at Brigham Young University.

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