Foreclosure and Home Equity Loans

Asked over 3 years ago - Glendale Heights, IL

What happens to a home equity loan in a forclosure such as when bank sells home that it foreclosed does the home equity loan get paid off due to the sale. Thanks

Attorney answers (2)

  1. Rick Lee Rogers

    Contributor Level 8

    Answered . When the home is sold at the foreclosure auction, proceeds in excess of the amount due the 1st mortgage lender (usually the plaintiff) will go toward junior liens. Any excess after all liens are paid will go to the borrower. For example, if a first mortgage in foreclosure balance is $100,000, and a second mortgage/home equity line of credit balance is $25,000, and the home sells at a foreclosure auction for $145,000, then

    1. The first mortgage lender receives $100,000,
    2. The home equity line of credit lender receives $25,000, and
    3. The balance of $20,000 goes to the homeowner.

    At most sales, the property does not sell for more than the amount due the 1st mortgage. In that case, the homeowner would still be liable for the balance due on any home equity line of credit. Today, most lenders are pursuing collection on those debts.

    Good Luck,

    Rick Rogers

  2. Steven Alan Fink

    Contributor Level 20

    Answered . The home equity loan loses its position as a secured lender. However, the lender still has a claim directly against the person who signed the note (the former homeowner).

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The... more

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