- Dennis Norman
In the past many investors have relied upon home equity lines of credit (HELOC) to allow them to use the equity in their residence to invest in real estate. Over the past year however many have found their lines of credit frozen or greatly reduced as a result of their lenders concern over property value or perhaps financial strength of the investor.
The Federal Reserve just published “5 Tips for Dealing with a Home Equity Line Freeze or Reduction” which, while it is geared toward consumers and not necessarily investors, still provides good information on how to deal with this situation as well as what rights the borrower has.
The guide explains that lenders can lawfully reduce or limit a borrower’s line of credit regardless of whether the consumer has made timely payments. However, the lender must send a written notice of the action no later than three business days after the freeze or reduction goes into effect. The notice must include information about any other changes to the HELOC. The freeze or reduction notice should include specific reasons for the action. The most common reasons for modifying the terms of a HELOC are a decline in the home’s value, or a change in the financial circumstances. Understanding why a lender froze a credit line may help a consumer take steps to have it reinstated to the original amount. For example, a lender may not know that significant home improvements have been made that increased the home’s value.
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