what to do? HELOC frozen...

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what to do? HELOC frozen...

Dennis Nikolaev
Member since 2019 · 84 posts · 32 votes

I just got a HELOC on my investment portfolio, so I can buy my next building with "cash".

I dumped all my operating funds in my HELOC to minimize the interest.

Now, I get a wrenching gut feeling that this HELOC can get frozen and I won't be able to buy anything new.

Please, give me an advice: what would you do?

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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
6y

Cash is king.  I'd rather have cash than less debt.

Most HELOCs have a low interest rates. To me paying a low interest rate on a HELOC is like buying insurance. I have protection against bigger risks for a nominal price.

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  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Dennis Nikolaev

    So if I understand correctly, heloc is not currently frozen? If so and you’re worried about that possibility, ... leverage it? Tax man will likely want a paper trail so talk to an accountant. You’re one of many hundred thousand LL’s who are currently learning about liquidity.

    2Reply
  • Dennis Nikolaev
    OP
    Member since 2019 · 84 posts · 32 votes
    6y

    @Account Closed

    Yes, I am worried. Now everything is alright. However, as soon as the markets will start shaking, I expect banks to start freezing HELOCs.

    I wonder how to "save" my liquidity.

    what do you mean "leverage it"?

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y

    I don't think the bankers can just freeze a HELOC. You should read your loan agreement. I have a HELOC. I didn't read my loan agreement. I did grab a little more out of my HELOC. But I'm pretty sure unless you miss a payment or something. The bank can't just arbitrarily freeze it. But again without reading your loan agreement......

    1Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    6y

    I have never heard of a line of credit being frozen. If you are unable to borrow from it, the bank makes less money. It sounds like you are worried about nothing. The good news is, you have less debt now. 

    0Reply
  • Derek Dombeck
    Real Estate Consultant · Wittenberg, WI · Member since 2014 · 572 posts · 572 votes
    6y
    Yes, some credit lines can be frozen and or called due and paid in full. You need to read your loan docs. Many people found this out the hard way in 2007. If you are concerned, take out what you need for operating reserves and put it into an account in a DIFFERENT bank. You should not leave it in the same bank as they may be able to pull it back out of your account. It happens.
    5Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    6y

    @Dennis Nikolaev

    If you haven't tapped the equity do a cash out refinance right away so that you have cash on hand. Then you won't have to worry about your line getting frozen or closed.

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    6y

    Cash is king.  I'd rather have cash than less debt.

    Most HELOCs have a low interest rates. To me paying a low interest rate on a HELOC is like buying insurance. I have protection against bigger risks for a nominal price.

    6Reply
  • Andrew S.
    Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
    6y
    Originally posted by @Anthony Dooley:

    I have never heard of a line of credit being frozen. If you are unable to borrow from it, the bank makes less money. It sounds like you are worried about nothing. The good news is, you have less debt now. 

    I don’t have any personal experience with this but @Jay Hinrichs has warned about this on many occasions.  HELOCs apparently often can (and do) get frozen/called

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Kirk R.:

    I don't think the bankers can just freeze a HELOC. You should read your loan agreement. I have a HELOC. I didn't read my loan agreement. I did grab a little more out of my HELOC. But I'm pretty sure unless you miss a payment or something. The bank can't just arbitrarily freeze it. But again without reading your loan agreement......

    this is not correct .. Most and i would say 99% of true HELOC's give the lender the unilateral authority to stop any further advances on the line and to call it.. would be rare they actually froze it and foreclosed.. but freezing it sure this happened en Mass during the GFC.. and the main issue is you dont know it until you try to access it.. the letter saying its frozen shows up about 30 days later :(

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    6Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Anthony Dooley:

    I have never heard of a line of credit being frozen. If you are unable to borrow from it, the bank makes less money. It sounds like you are worried about nothing. The good news is, you have less debt now.

    quite common during the GFC Anthony hundreds of thousand   helocs got frozen.. the issue is NO ONE reads the fine print in the 20 page mortgage or deed to secure debt whatever your using.

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    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Derek Dombeck:
    Yes, some credit lines can be frozen and or called due and paid in full. You need to read your loan docs. Many people found this out the hard way in 2007. If you are concerned, take out what you need for operating reserves and put it into an account in a DIFFERENT bank. You should not leave it in the same bank as they may be able to pull it back out of your account. It happens.

    YUP bankers call this Evergreening..  And they do have the right to tap your accounts as you state.. its rare but its available to them.

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    2Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y

    @Jay Hinrichs why you have to bust my ignorance is bliss bubble :) thanks good info.

    It's something like if you read all your agreements each year it would take like 76 work days!

    Now what to do with my HELOC. Hate paying the interest if I were to tap it & put it into another bank. Guess I could take it for a little til things settle down.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Kirk R.:

    @Jay Hinrichs why you have to bust my ignorance is bliss bubble :) thanks good info.

    It's something like if you read all your agreements each year it would take like 76 work days!

    Now what to do with my HELOC. Hate paying the interest if I were to tap it & put it into another bank. Guess I could take it for a little til things settle down.

    put it in the stock market :)

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    3Reply
  • Nick Gann
    Real Estate Agent · Murfreesboro, TN · Member since 2019 · 194 posts · 181 votes
    6y

    @Jay Hinrichs

    Start a gas station while prices are low!

    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Jay Hinrichs many bargains right now in the stock market

    0Reply
  • Scott Anderson
    Rental Property Investor · AZ · Member since 2018 · 212 posts · 183 votes
    6y

    I have a US Bank HELOC. They can cut the limit to stop advances but they can't call it.

    For the last year I’ve been paying it off with all extra funds to use again on the next property.

    While seeing the news two weeks ago I cashed the whole thing. I pay a small payment to have my cash so they can’t keep it from me.

    Now I’m hoarding cash until it blows over and can immediately put my funds back to use when I’m ready and don’t have to wait for the banks to wake back up. 

    1Reply
  • Dennis Nikolaev
    OP
    Member since 2019 · 84 posts · 32 votes
    6y

    What can be the signs of a freezes coming?

    Was it property values dropping in 2008?

    My trouble is that I got over 500k in HELOCs. keeping it as cash is going to cost me 2500 per month.

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    6y

    My HELOC with B of A was frozen during the financial crisis. They didn't like the city I lived in. And my credit score is over 800. At the time, I was already using the line, so they didn't call it due, they just prevented me from accessing any more of it.

    I also never keep much cash in a bank account in the same bank where I have any mortgage.  For example, I have a mortgage and operating account at Bank X for one of my businesses.  I pull out most of the surplus cash from the operating account and put it in an account owned by the same company but in Bank Y. That way I get to determine how it's use, not the bank. 

    If you think you will need the cash, pull it out of your HELOC and put it in another bank. Like @Jay Hinrichs and others have said.  Just adding my experience.

    5Reply
  • Joe Cassandra
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    6y

    I didn't have a HELOC during 2008 (have one now). From my understanding, many in 2008 that had them frozen were due to falling home prices --- some 30%+ --- and the property being overleveraged.

    So if they bought the house for $200k with $0 down...got a HELOC and tapped that as well...and prices dropped to $170k...their HELOC would likely get frozen as the bank is now 'naked.'

    If you have a good chunk of equity in your property...I would think you would be okay.

    0Reply
  • Dennis Nikolaev
    OP
    Member since 2019 · 84 posts · 32 votes
    6y

    @Ann Bellamy were the values dropping in your city? by how much?

    Thank you, everyone, for the input.

    I actually got in touch with the bank and the helped me to find the parts of the contract that outlines possible freezes.



    Now I know that is the property is worth less than 120% of the loan, then it may trigger the freeze. I'll just keep watching the values.

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    6y

    @Dennis Nikolaev, prices were dropping in every city.  Mine was probably worse than some and not as bad as others.  I was not over leveraged, as I had put 20% down and had paid it down significantly.  It was done by city, not by individual.  So the facts that my credit score was over 800 and I had plenty of reserves in their bank were not taken into consideration.  That's when I learned to move my assets to another bank (not the one where I had my mortgage), because there was no consideration given to my individual situation.  Protect yourself, because the bank is not there to help you.  

    0Reply
  • Robert Gunn
    Investor · Tampa, FL · Member since 2019 · 48 posts · 7 votes
    6y
    Originally posted by @Kirk R.:

    @Jay Hinrichs why you have to bust my ignorance is bliss bubble :) thanks good info.

    It's something like if you read all your agreements each year it would take like 76 work days!

    Now what to do with my HELOC. Hate paying the interest if I were to tap it & put it into another bank. Guess I could take it for a little til things settle down.

    Seems logical that you could tap the HELOC and put the cash into a liquid, interest bearing account to offset the HELOC interest. That way you have access to the cash when needed, while paying minimal interest.

    Is this feasible?

    1Reply
  • Lisa G.
    Atlanta · Member since 2018 · 10 posts · 3 votes
    6y

    So I just found out today my HELOC is frozen. No idea why, my financial situation is the same. Also read fine print and haven't violated anything in the terms. When I get on the phone with someone guess I will find out why and what I can do to unfreeze it.

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Lisa G. Bummer. Keep us posted.

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    6y

    @Dennis Nikolaev it is worth listening to @Lisa G. story.  This same sort of thing happened in 2008.  Most HELOCs include a clause that the bank can freeze them anytime they want.  If you are going to want liquidity in the next 12 months, get your cash out now.

    0Reply
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