Converting secured debt to unsecured?

Question

I am looking to sell my home and have had trouble finding a buyer for the current asking price. Was told by a real estate agent that it may be possible to carry my heloc(2nd mortgage) with me after the sale as an unsecured debt. This would allow me to lower my asking price and simply pay the outstanding heloc(would now be unsecured debt) as one would pay down a credit card.
Of course this is all contingent on the lender approving such a conversion. Sound like anything anyone has heard of before or is the agents information incorrect?

Answer 1

Get another agent- your's, like most, is an idiot!

No lender would release the collateral and leave the existing loan in place with the original terms. you will need to get and unsecured loan to payoff the secured loan. Be ready high fees and high interest rates.

Answer 2

Can you pay for the new home you are looking for with your existing HELOC? If so, do what's called a wrap-around mortgage. Basically you use your current HELOC to purchase another house, and owner finance your current house to buyers coming in (at a higher rate).

Here's an example:
Current House A you are trying to sell has a $150K HELOC with a 8% interest rate.
You purchase another House (B) for $150K cash (you write a check from your HELOC). You make the payments on the HELOC.
At the same time, you sell current House A to someone for $200K and hold the mortgage instead of them getting a mortgage from a bank.
Buyers of current House A gives you a down payment just like they would give a regular lender (you can make it less than what a normal lender would require to entice buyers - you make the terms), and buyers send mortgage payments into you each month. Make the interest rate greater than 8%, and you will actually have positive cash flow to boot!
Whenever the buyers refinance their loan down the road (with a different lender), they pay off their mortgage with you, and you pay off the HELOC.

You should also talk to a real estate attorney to see how you legally should do this. If the bank is getting paid every month, it's very unlikely they will exercise the Due on Sale clause (it's an option the bank has, not a requirement, contrary to what some people will tell you). Worst-case if they do call in the loan you take out a loan (HELOC or similar) on the house you live in, which would have been paid for in cash.

Hope that wasn't too confusing.

Answer 3

This is not a problem if you have good credit scores, low debt to ratio income, and the lender is willing to convert. The lower the outstanding balance on the heloc, the more likely they will be to consider it. Also, the line will be closed obviously so you can charge against anymore. They may convert it to a different line though, so make sure your interest rate doesn't jump unreasonably. Interest rates for unsecured debt are typically higher than those of secured debt. How high it goes up depends on your credit score.

Answer 4

Assuming that you can qualify for a large enough personal loan to pay off the HELOC this won't be a problem. You should expect a significant increase in your interest rate and most likely a much shorter term.

If you can't qualify for such a personal loan, then that simply won't happen.

Answer 5

Hi this is Ken from Dallas

I'm not an expert, but have played with this funny money stuff in real estate for about 31 years now. Yes you can carry the debt with you. IF your lender allows that. Ask them. Be persuasive. Show them how their liability will not increase by your move.

Best regards,

Ken Chipman
http://seveneasyways.com/

Answer 6

I have close to 500k in unsececured debt with a family friend initiated by my elderly (88 y.o.) father. Is it possible to convert to secured debt with assets or as a mortgage holder?

Answer 7

whenever i ask a question, even if it's the easiest one, they cannot provide me a proper informed answer here. What happened to people that actually make the effort to write an answer?