Home Equity Line of Credit when a Home is Sold

What happens when a house is sold, but lines of credit are still owed. Do lines of credit have to be paid back in full or can you continue to make regular payments?

1 Answer

If you have a line of credit that is anchored to or collateralized by your house (such as Home Equity Line of Credit), you will not be able to sell the home without paying this lien off in full. In order for the new owner to take title of the home, there can be no existing liens - and any balance on a home equity line is considered a lien.

If the sum debt of the mortgage and the credit line are more than the market value of your home, you will have to bring the balance owed after sale as a bank check to the closing table. If you cannot, you may not be able to sell at this time.

If you are distressed or behind on your loan(s) and must sell, you may be able to obtain the lender's permission to "short sell" your property- that is, sell for less than what is owed. Be aware that this will affect your credit rating!!! When you " short sell" your home, the lender must agree that the value of your home does not support the lien, that you are unable to keep making payments, and that there is no possibility to sell for the full amount owed. You will not be allowed to profit from the sale - all available money will go to pay as much of the liens as possible. It is highly advisable that you speak to an experienced shortsale real estate agent and/or real estate attorney in your marketplace to carefully weigh the pros and cons, if this option seems the only way to go.

If your line of credit is not collateralized by your home (for instance, a personal line of credit or an unsecured credit card), the sale of your home will have no affect on your payments - continue to pay as required by the terms of your contract.