Buying Sub-2 a HELOC?

3 Replies

I am looking at a house down the street from a current rental I own. The owner of 50 years just passed away, and the closest surviving kin is a nephew. He's looking to move out of state soon and wants the sale of the house to cover an existing, maxed-out $15K HELOC, as well as potential medical/Medicaid expenses from her final days. He's just starting probate, so there are lots of unknown unknowns.

The house is currently worth around $20K. There don't appear to be any significant structural issues - mostly cosmetics and a new kitchen and bath. While I would purchase it as a buy and hold, flip ARV is in the neighborhood of $75K.

While I am able to do all cash, I am intrigued by the possibility of purchasing subject to the existing HELOC. This is theoretical at this point, as I haven't seen the documentation of the loan or other details. I'm able to cover the loan if the DOS is triggered without problems. Assuming that the interest rate on the HELOC is viable, is this any different from a regular subject to deal? What safeguards, if any, can be put in place to prevent the seller from drawing on the HELOC in the future?

Ben, you really need to read the HELOC docs. A HELOC is terminated upon death, unless the nephew was a borrower he can't draw against is. HELOCs can be called for changes in a borrower's circumstances, like death, change in credit risks, collateral value reduced, or often if the lender just wants out they can terminate future advances. While the obligation becomes a liability of the estate, state laws may allow heirs to assume the debts, but it is unlike a regular mortgage.

You can buy Sub-2, but be prepared to pay it off, it's not just a due on sale issue, although there is by selling, but the loan itself may be accelerated to maturity under the terms of the loan. HELOCs are fine for short term financing needs, they cab be dangerous as long term arrangements without the ability to pay them off.

No other real issues, just do your Sub-2 and fly with it, make the payments, if the lender calls it due, get your checkbook out. :)

We always buy with a bond for title that wraps the HELOC. The wrap has identical terms as the HELOC so it's almost a sub2. Since the HELOC is revolving debt, the bank will call loan due it you took it sub 2. However , just as Bill said, since it's in an estate be ready to pay it off if need be.

I have a couple like this that aren't in estates that are going well.

Thanks for the advice. If, after reviewing the docs, it turns out to be worth (and possible to do) Sub-2, it seems that the worst that could happen would be that I'd pay cash a few days longer down the road than would otherwise be the case. :)

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