The Basics About Home Equity Loans:  What Happens if You Default?

Introduction

If you are like many people today you may be in the process of attempting to bring a sense of order to your financial affairs, you may be contemplating what your options are in this regard at this point in time when it comes to resolving problems associated with your finances.  Because you may have had some financial problems in the past, you may be wondering on what can happen if you do default on a home equity loan.

In this article, you are provided with basic information about what happens should you end up in default on your home equity loan.  Armed with this information, you will be in a better position to determine if a home equity loan is right for you.  Moreover, you will be in a better position of understanding what to expect if you ever end up in a positioning which you are in default on your home equity loan.

The Definition of a Home Equity Loan

At the outset, it really is important for you to have an understanding of the definition of a home equity loan.  A home equity loan is a loan in which a person is able to obtain financing with the equity in that person’s residence being used as collateral for a loan.  The equity in a home or residence is the value of that property above and beyond any other mortgage loan encumbrance that may already exist on that property and the appraised value of that real estate.  The most common types of a home equity loans in this day and age are second mortgages and home equity lines of credit.  Both of these types of loans depend upon the equity of the real estate being used as the collateral for the home equity loan itself.

The Default Process

In the end, if you seriously default on a home equity loan -- whether it be a second mortgage, a home equity loan or a home equity line of credit, you can end up in foreclosure.  The foreclosure procedure is precisely the same procedure that would occur if your first mortgage holder elected to pursue a foreclosure action.

If the foreclosure action is pursued from start to finish, you will be in a position of having to move out of your home.  The lender that holds the first mortgage will be paid from the proceeds of the foreclosure sale initially and then the home equity loan (second mortgage, home equity loan or home equity line of credit) will then be satisfied from the proceeds of the foreclosure sale.

What You Can Do to Deal with a Default on a Home Equity Loan

If you find yourself involved in a situation which you are in default on a home equity loan, you should try and negotiate a new payment scheme with the lender.  Failing that, you might be well served obtaining an attorney to aid and assist you.