using a HELOC as plan B?

Question

Hi everyone,

I currently have around 800k in equity on my primary residence and after consulting with my lender can put a 500k HELOC in place.  That said, in the event I loose the property to foreclosure or some financial anomaly, would I be able to pull the 500k out of my HELOC without recourse if the bank were to take the home? If not, could I withdraw the full 500k and put it into an entity without recourse from the bank?

Thanks!

Steve

Steve Korn · Answer

Aaron,

I think you’re misunderstanding what I’m saying. I don’t want to sell my primary, however in the event of housing collapse I’m curious to know (Plan B) if I can at least walk away with my HELOC monies free of bank recourse. My thought is that it helps me hedge more loss than I would normally be exposed to.

Aaron K. · Answer

@Steve Korn I mean you just lose more of the equity in your house and destroy your credit for no reason, if you were going to do that just sell the house and get the money and keep your credit intact. I mean when you say you have $800k in equity why would you throw $300k of that away and mess up your credit to keep $500k it just doesn't make sense.

Steve Korn · Answer

Thanks Aaron!

Even if the money is wrapped into an entity?  How can they collect on that cash?  They're still getting the asset back.  Isn't that part of the risk the bank is assuming taking on a HELOC?

Aaron K. · Answer

No you can't just keep $500k, the HELOC is using your house as collateral if your house is foreclosed on your creditors who have used it as collateral get the money back from that.