HELOC second mortgage and property tax foreclosures are expected to increase in 2018–2025. $265 billion in home equity lines of credit mortgage loans (or HELOCs) will go into foreclosure from 2015 to 2018 according to Experian. Some homeowners will have to increase these monthly second mortgage payments by 3 to 4 times the present monthly amount.
Home Equity Line of Credit HELOC Second Mortgage Foreclosures
These HELOC loans were popular from 2005 until 2008 before home values fell. Since 2008, these are interest-only loans. However, balloon payments for these loans are coming due. Additionally, short-term increased payments will renew the foreclosure bubble. Along with it, Kentucky Counties are selling more and more property tax liens which increases foreclosure rates further.
Lenders are preparing for this new wave of foreclosures. This happens because HELOCs allow homeowners to draw on their home equity during the draw period. Also during this time the homeowner only had to make minimum, interest-only payments. Of course, that’s what many homeowners did during the recession. But eventually, the HELOC “resets” are due. When the time comes, it has to be paid back, and the homeowner can no longer borrow. What’s more, these HELOCs were on ten-year notes and will start to “lockout” these homeowners from making interest-only payments and borrowing any further.
Second Mortgage Foreclosures and Chapters 7 and 13 Bankruptcy
Most homeowners took out the maximum amount of cash for second mortgages trying to survive. Now they have to repay the amount borrowed plus interest. For many homeowners, the only answer is to file Chapter 13 and strip second mortgages, if the second mortgage has no equity. HELOC second mortgages became negative equity mortgages when home prices fell. HELOCs changed into primarily unsecured loans. The supreme court announced in June 2015 that second mortgages can only be stripped in Chapter 13.
However, for many lien stripping might not be an option. Sometimes people may owe 20 – 25% more than their home is worth. In that case, they need to simply file Chapter 7 bankruptcy and walk away from their home. For many, these HELOCs were huge credit cards that were at or over the limit with very low-interest rates for years. However, all of these loans have no reduction in the balances and will mature within the next three years.
How much these mortgage payments will increase depends on the interest rates and the term of the loan. In addition, many of these HELOCs have no repayment periods, and the entire balance will become due. Unfortunately, homes with no equity can’t effectively refinance.
HELOC Second Mortgage Foreclosures
Very few homeowners will be able to afford these balloon payments or be able to refinance to save their homes. Most homeowners have known this and have put off maintenance on their homes. Now, these homeowners plan to defend the foreclosure by filing answers and discovery until the home must sell and have given up any hope of saving the homes.
According to Charles Phelan, a debt-relief consultant who specializes in HELOC negotiation, the lack of equity and ability to repay simply limits the homeowner’s options:
“due to real estate prices dropping to the point where most HELOCs are not covered by equity. A home having negative equity blocks people from refinancing to a single new mortgage at a more reasonable payment level. Phelan said “A lucky few will be able to absorb the new high monthly payment without defaulting and thereby risking foreclosure… Some HELOCs will be able to refinance. But the majority of HELOCs will default and sell at foreclosures.”
Loan-modification programs only offer interest reduction and there is little or no chance of principal reduction. However, bankruptcy allows a person to strip second mortgages that have no equity. Also, bankruptcy allows homeowners to avoid the deficiency or tax consequences after the home is sold.
Over 10 million HELOCs issued from 2005-2008. Unfortunately, a majority of these homes will probably foreclose. Of course, this translates to another wave of defaults and will be an additional downward drag on America’s housing recovery for years.
Resources for Foreclosures
Where to Report Foreclosure Scams
Federal Trade Commission (FTC) for foreclosure scams.
Trustee Regions and Offices for foreclosure scams that involve bankruptcy
Other Related Information
Louisville Kentucky Foreclosure Defense
Property Tax Foreclosure Bankruptcy
Mortgage Foreclosures in Louisville Kentucky
If you need help with your foreclosure, contact my office right away to start the conversation. Nick C. Thompson, Attorney: 502-625-0905
