Foreclosure

questions & answers

Question: My home has recently been foreclosed on. I have a HELOC attached to the dwelling. Am I responsible for repaying this debt?

Answer:

The following is for informational purposes only, and an attorney should be consulted to determine whether a specific Home Equity Line of Credit can be discharged in a foreclosure.
Home Equity Line of Credit or HELOC’s are subordinate to primary home loans. This means that the HELOC lender has claim to any money generated by a foreclosure, only after the primary mortgage lender recoups their full loss. The HELOC lender may not see any money when a property is foreclosed upon.
HELOCs are considered “recourse loans.” The borrower is personally responsible for paying recourse loans in full, regardless of their property’s value. If the lender doesn’t recoup the full cost of the loan during foreclosure, they can sue the borrower for the remaining money owed.
If a HELOC lender forgives a recourse loan, the borrower is generally required to include the forgiven amount in his taxable income. Based on the Mortgage Forgiveness Debt Relief Act (http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-)  you may be able to avoid paying taxes on the forgiven amount.

For legal assistance with foreclosure issues contact the legal aid agency serving your county or use the Access To Justice Online Intake System on AZLawHelp to apply for help.