Defaulting on a HELOC in California?
January 14, 2011 8:35 AM Subscribe
Facing down a foreclosure - can or will the bank whom our HELOC is with go after cash sitting in a savings account at the same bank without a court order?
We're looking at being foreclosed on in the near to intermediate future. Relevant details: Home is in california, heloc was a refinance to a lower interest rate than the original loan we purchased the property with. We have attempted to work with the banks, but have not met with any success due to either the amount we're underwater, we're current on payments, etc.
We have an excellent (well, I suppose up until now) relationship with our bank, USAA. While it pains me to do this, we're running short on options and I am trying to figure out what will happen if our HELOC with USAA is written off or sent to collections. Will they simply take whatever meager funds are in our savings and checking accounts and close them? I suppose they'll cancel our credit cards with them regardless if there is a balance or not.
Anyone have any idea how this works? Can we maintain a relationship with the bank, do I need to move our remaining cash outside of the near reach of the bank so we're not left with whatever is left in the reserve fund.
We are meeting with an attorney next week who works with these types of issues who may be able to provide guidance. Thanks for any advice regarding whether our relationship with this bank will be ruined permanently.
We're looking at being foreclosed on in the near to intermediate future. Relevant details: Home is in california, heloc was a refinance to a lower interest rate than the original loan we purchased the property with. We have attempted to work with the banks, but have not met with any success due to either the amount we're underwater, we're current on payments, etc.
We have an excellent (well, I suppose up until now) relationship with our bank, USAA. While it pains me to do this, we're running short on options and I am trying to figure out what will happen if our HELOC with USAA is written off or sent to collections. Will they simply take whatever meager funds are in our savings and checking accounts and close them? I suppose they'll cancel our credit cards with them regardless if there is a balance or not.
Anyone have any idea how this works? Can we maintain a relationship with the bank, do I need to move our remaining cash outside of the near reach of the bank so we're not left with whatever is left in the reserve fund.
We are meeting with an attorney next week who works with these types of issues who may be able to provide guidance. Thanks for any advice regarding whether our relationship with this bank will be ruined permanently.
I dealt with this when a family member died. She was underwater on her HELOC and her only checking account - which we needed to pay various other bills - was with the same bank. The loan document pledged the account as collateral against the loan, and even had language that said that they could go after the collateral even prior to default if they had reason to believe that the borrower would default. There was a nice person at the bank who I talked to, who said that if we were late on payment for [some period, I can't remember], they would automatically pay themselves out of the account. Though we ended up working everything out with the bank, to protect the money we emptied the account and moved it to a different bank so that we could pay other creditors.
I would look at your loan documents and see if there are similar provisions (or some catch all provision that broadly gives them rights to protect the repayment of the loan). Assuming so, I would withdraw that money and stick it in another bank, at least in the interim. It would suck to have to walk away from a house, and it would suck even more to have to walk away from a house without any cash in the bank to start over.
[not your lawyer, etc.]
posted by AgentRocket at 8:59 AM on January 14, 2011
I would look at your loan documents and see if there are similar provisions (or some catch all provision that broadly gives them rights to protect the repayment of the loan). Assuming so, I would withdraw that money and stick it in another bank, at least in the interim. It would suck to have to walk away from a house, and it would suck even more to have to walk away from a house without any cash in the bank to start over.
[not your lawyer, etc.]
posted by AgentRocket at 8:59 AM on January 14, 2011
If you're connected to USAA because you're a veteran, the VA has programs that can help. Not sure about the details in California (and of course their website is pretty opaque) but it's worth a try.
posted by charmcityblues at 9:04 AM on January 14, 2011
posted by charmcityblues at 9:04 AM on January 14, 2011
Note: I'm not a lawyer, etc.
Anyone have any idea how this works?
This is really going to be difficult for anyone to answer other than a lawyer who is familiar with California real estate law and your particular situation. With normal primary residence mortgages, California has an anti-deficiency statute which means that even if the bank does not recover enough from the foreclosure they cannot get any more money from you to make up the difference. I do not know if that applies to your HELOC and I think even an expert would need more information than you have given here to figure that out. Also it might depend on the terms and conditions of your specific loan.
Are your checking and savings accounts with USAA? If so, then yes, they will empty them.
It may not be 100% legal, but they WILL do it, and when they do, it will be very, very hard, maybe impossible, to get any of that money back.
A bank could theoretically illegally hold your money for any reason but I don't think it's reasonable to assume that they will definitely do so. That said, there is probably not much downside to moving your funds to another bank, so if you are concerned about this I can't imagine that you would run into any problems opening a new bank account and transferring your money there other than the usual hassles of switching banks.
posted by burnmp3s at 9:10 AM on January 14, 2011
Anyone have any idea how this works?
This is really going to be difficult for anyone to answer other than a lawyer who is familiar with California real estate law and your particular situation. With normal primary residence mortgages, California has an anti-deficiency statute which means that even if the bank does not recover enough from the foreclosure they cannot get any more money from you to make up the difference. I do not know if that applies to your HELOC and I think even an expert would need more information than you have given here to figure that out. Also it might depend on the terms and conditions of your specific loan.
Are your checking and savings accounts with USAA? If so, then yes, they will empty them.
It may not be 100% legal, but they WILL do it, and when they do, it will be very, very hard, maybe impossible, to get any of that money back.
A bank could theoretically illegally hold your money for any reason but I don't think it's reasonable to assume that they will definitely do so. That said, there is probably not much downside to moving your funds to another bank, so if you are concerned about this I can't imagine that you would run into any problems opening a new bank account and transferring your money there other than the usual hassles of switching banks.
posted by burnmp3s at 9:10 AM on January 14, 2011
Loans typically have a clause called the "Right to Offset", which means that the bank can use money deposited with them to pay down the principal, interest, legal fees, etc.
I wouldn't worry too much about maintaining a relationship, this one is dead. If anything moving the money out will- a) deprive them of an earning asset, b) delay the time they get a hold of their money. Maybe just convert the money to cash and use it for living expenses? If the money is spent, the bank can't get it.
posted by JohntheContrarian at 9:22 AM on January 14, 2011
I wouldn't worry too much about maintaining a relationship, this one is dead. If anything moving the money out will- a) deprive them of an earning asset, b) delay the time they get a hold of their money. Maybe just convert the money to cash and use it for living expenses? If the money is spent, the bank can't get it.
posted by JohntheContrarian at 9:22 AM on January 14, 2011
This thread is closed to new comments.
It may not be 100% legal, but they WILL do it, and when they do, it will be very, very hard, maybe impossible, to get any of that money back.
I worked at a bank, just as a teller, in college. My manager, with some regularity, pulled funds out of customers accounts because they were co-signers on car loans and mortgages, and that was just because payments were late, not because the loan was in default.
If it were me, I'd move my money out and not worry about my relationship with USAA, which is probably toast.
posted by Leta at 8:56 AM on January 14, 2011 [1 favorite]