HELOC in senior position


#1

I found a property worth only about $300,000, where the purchase money loan was refinanced several times and the last time being in 2008 by Charles Schwab Bank for $360,000. Charles Schwab bank is now foreclosing, however there is a HELOC by Washington Mutual for $125,000 in 2004, which has no reconveyance nor subordination agreement recorded. Is there a way to confirm that the senior HELOC has in fact been reconveyed, but just failed to record? Or is there a way for a 3rd party to confirm if the HELOC is still open?


#2

You are going to have a hard time trying to figure out if the HELOC is still open or not. If a detailed title search and/or a title company shows that a HELOC is still open, then the next title company will still say that. So, the HELOC has to be reconveyed before you can sell the property to anyone else.

Unfortunately, you cannot just call up the Bank with the loan number (which is shown on the recorded document) and try to get anyone to confirm or deny that the HELOC has any balance or is still open. Especially since it is Washington Mutual and now you would have to search through Chase Bank to try to find someone to answer the question. They usually will not discuss a loan with an outside party.


#3

Thanks GJ, your reply really helps although it is exactly what I am afraid of. As a novice investor, I would obviously just move on to the next property and forget about this one. However, I am curious what would an experienced investor such as yourself do with such a property?


#4

HI EDog, We have had a few investors that have purchased properties that had senior un-reconveyed HELOCS. Some are purchased by mistake and others took a calculated risk. In the refi boom we did see some sloppy title work and missed Recon’s. One investor bought a purchase money 1st only to find an unreconveyed HELOC from the prior owner that had been using the credit line AFTER they sold the house. A lender foreclosing on the loan would have a title policy to protect them from this but an investor does not have the same protection. This investor opened escrow with the same title company that handled the purchase because they would have access to the prior escrow and the payoff letters that requested the account to be closed and the loan reconveyed. This would be even more challenging if the title/escrow company is no longer in business (which happened to one investor).