Default equals. A home equity line of credit is just a line of credit secured by a lien on your home. Essentially, a home equity line of credit is exactly like a second home loan. Default under the home equity line of credit enables the creditor to foreclose and sell your home.
When you apply for and get a house equity line of credit, the lender will require you to sign a mortgage or trust deed, both of which are legal documents that give the creditor a lien on your home. The lien is your lender’s remedy if you default in your repayment on the line of credit. The creditor exercises which remedy by carrying out foreclosure after you default.
The very first thing happens when you default on your house equity line of credit is the lender will send you a Notice of Default and Election to Sell. This Notice of Default is an official letter which initiates the foreclosure procedure. The Notice of Default points out that you’ve breached your repayment obligation and the creditor intends to sell your house in foreclosure.
The Notice of Default also accelerates the home equity line of credit, which basically means that the creditor is now demanding payment in full online of credit. Rather than paying the line of credit off over time, after acceleration you must pay back the full amount of the outstanding balance on the line of credit immediately in order to prevent foreclosure.
Three to six months, depending on state law, after sending the Notice of Default, the creditor then has the right to send a note of a foreclosure deal. The foreclosure sale is a public auction where a third party, called a trustee, sells your home to the highest bidder and then uses the money earned to pay off the home equity line of credit. Any sales proceeds that are excess will be reimbursed to you.
After the foreclosure sale, you no longer have a right to occupy your house. If you try and stay in the house, either the creditor or the new owner who purchased the house at the foreclosure sale may file an eviction suit and have the sheriff eliminate you from the house. Eviction means the sheriff forcibly removes you and your possessions from your house.
Default on a house equity line of credit is every bit as significant as according to a primary home loan. You stand to eliminate the very house that secures the line of credit. It should go without saying, then, that default should never be an option.