Pat Hune, Broker, 1st Southwest Realty, August 2019
Many homeowners use a Home Equity Line of Credit (HELOC) to finance house remodeling, various projects or other things like an expensive vacation. It used to be a great way to leverage your home equity and get a tax write-off. Unlike credit card interest, the interest on a HELOC was tax deductible. However this is applies only if you used the loan on the house. If you bought a boat then it might not be tax decutible. The tax laws are always changing. Check with your tax professional to see if the interest is deductible.
Recently I was helping a client, Fred Flintstone, sell a rental property owned free and clear. An offer was received, accepted and the buyer opened escrow. The preliminary title report showed an existing line of credit. Fred was shocked. The line of credit had been closed years ago – or so he thought. Unfortunately simply telling the bank to close a line of credit does not mean it is officially closed. Thus began the painful process of trying to get the bank to provide a payoff statement showing the HELOC had a zero balance. The title company needed a notarized, original document, called a lien release. Title needed to record this document to remove the HELOC from title. The bank initially said it could take twenty business days (about 30 calendar days) for the paperwork to be processed. This was going to be dangerously close to the close of escrow date.
Weeks went by and there was no sign of the paperwork. The title company sent several requests for the payoff and lien release. The bank did not respond. The week prior to closing I asked the seller to start calling the bank every few hours until he could talk to someone. He had to get an answer. If the paperwork was delayed escrow would have to be pushed out. This would not be good because 1) the buyer would not be able to move in as planned i.e. the U-Haul had been rented and loaded, 2) the buyer’s loan documents could expire which means his interest rate could go up, 3) Fred would have more carrying costs with utilities, pool service, yard service, insurance and maintenance.
Fred placed several phone calls and finally the bank started talking to the title company. But the bank said they would record the lien release through a mysterious third party directly with the recorder’s office. The title company said it could take three weeks for the recorded document to be available from the recorder’s office. Finally the bank agreed to overnight the original document so title could record it at closing. The document arrived two days before closing. Whew!
I had another transaction where the lien release was never recorded and the bank was out of business. The title company was able to clear title but it was painful.
The moral of the story is if you close a HELOC check to see if bank has recorded the release.