Home equity to pay off debt. Good idea?

It depends on your situation. But remember you will be putting your home at risk, if you take out a home equity loan.

There are a lot of things to consider with an equity line, and default with them isn't necessarily easy to deal with.

A lot of it depends on your state and what the laws are around deficiency judgements.

I strongly advise anyone to not use their equity to pay off debt. Right night your debt is unsecured, which means, if you default, there is nothing they can take from you. If you use your home to pay off the debt than you're putting yourself at risk of loosing your home.

If your not going to use all your equity up then maybe it would be ok. Also, please be advised that HELOC are getting harder to get. And you have to have a credit score in the 700's to get approved.

I agree. Its almost never a good idea to turn unsecured debt into secured debt.

Could turning unsecured debt into secured debt potentially be a good idea if one lives in a state where creditors can take your house if they get a judgment? If the HELOC payments are more affordable than the credit card payments, and would thus allow you to avoid default. That was my plan a couple of years ago, but I was turned down for HELOCs.

I have seen a lot of conflicting advice regarding liens on property and how likely it is the judgment creditor will foreclose on the lien. I know there are exemptions under state law so they can't take all your equity in the house.

My understanding is foreclosure on judgment liens is rarely done due to the costs involved. But in my situation, I own the house free and clear, so there is no mortgage they would have to pay off.

Does anybody have any experience on how likely it is the creditors would take my house? I'm in Ohio.

understand this.if you get a home equity loan,and you default.they can and will put a lein on it.that means if you try to sell the house down the road.you would have to pay back the lein to sell the house.never heard of a foreclosure on a home equity loan ona house that is paid for totally.maybe someone else can share an example if there is one.how big of a loan were you looking for?it might depend on the amount of the loan as well.

Paul. my understanding is with a HELOC, the bank has a lien on your house even if you don't default. It's basically a second mortgage, but in my case there is no first mortgage.

My worry is about unsecured credit card debt, Mastercard and Visa, suing me, winning, and getting a lien on the house. Once they have that lien, my understanding is the judgment creditor/lienholder can force a sale, but that it is rarely done. At least I hope it is rarely done and won't be done in my case.

The reason I was trying to get into a HELOC was, if I couldn't pay the credit cards (with their 20% + interest rates), my house would be at risk anyway, so I would be better off having a HELOC with lower, affordable payments.

It's all moot now anyway, as my credit is shot.

My understanding in FL. (Which may well indeed be wrong) was that lein stayed with property and needed to be satisfied PRIOR to sale or estate transfer, BUT a Foreced sale on homestead property was not of issue. Again I'm hoping those better informed will chime in. Thanks

RAN

In my opinion, the only reasons to take a HELOC is to consolidate your debt into one payment at a lower rate and write of the interest on your taxes. I would never consider one in the fear that I might some day be sued and end up with a lien. If you ever made it to that point then you could consider maybe doing a HELOC. Personally I don???t like them since they transfer unsecured debt onto your home. They weaken your financial stature more than strengthen in my opinion.

As an added note I see no benefit to taking out an HELOC just for the fear that you might be sued. As an example, it is a very long process for a credit card to go from an unsecured 10,000 in debt to actually obtaining a lien on your home. I suppose it is possible but I don???t think it happens too often. Even if they did manage to make it that far I don???t think they would foreclose. I think they would just hold the lien until you sold.

Based on my understanding of liens and foreclosures, if they could and did foreclose, they are only entitled to the amount of the lien as stated by the lawsuit and the lien paper work that was filed via the courts. They would not be entitled to your entire home value. In your case you own the home free and clear. In a forced sale they home would be auctioned. You would get all the money above and beyond the amount owed on the lien. All you would have to do is show up with the lien amount and bid the market amount since you are the number two lien holder. You would pay the lien and then in theory pay yourself the rest to obtain the house. If any one bid over market then either you make money or you just keep bidding.

I work for a Credit Union in Cincinnati so I am very familiar with Ohio laws. So if you don't have a first mortgage then pretty much you own your house free and clear. If a judgement is issued they cannot take your house. They may file a lien on your house which means it would have to be paid off before the house is sold or refinanced. They can't actually take your house.

In order to do this, you will need a min 620 score. I would also only advised doing this if you're not going to use up too much of your equity.

Think about this though before you move forward on this.

The debt you have now is unsecured. So if you default on it the worst thing that's going to happen is they will obtain a judgement. That's it.

If you use your home to pay off this debt and you fall on hard times and can't pay, then they will foreclose on your home.

Thanks, Sassy lil Brandy, for your very informative reply.

There is so much conflicting info and scare tactics on all sides regarding this. I even had an attorney I was consulting tell me the creditors would take my house and that I would even lose the house in a Chapter 13 bankruptcy (not true, I now know). I posted about this guy in another thread; I think he was trying to scare and scam me into selling the house to settle with creditors and he was planning to skim $ off the top.

So I don't have a problem with the creditors (one is already suing me) getting a lien, as long as I can live in the house until I die. As for the HELOC, it's too late. I couldn't get one when I was working and before I defaulted on the cards. Now, disabled and in default - no way.

Yea, sometimes attorneys can scare you into doing some things. But it's like any industry, you have some good and some bad. You just have to do your research.

The other cool thing is that since you are disabled they can't garnish your income.

Sometimes it helps reduce the stress when you think of the worst thing that can happen. And in your situation it really isn't as bad as you think. But I know what it feels like when you're going through it.