Question for loan officers / brokers

What happens if a bank fails to close out the prior HELOC when refinancing, but only paid it down to 0?

There may be an issue on title as the second would now move in to first place.

Can you explain?
Which loan is secured by the property…the new one or old? What secures the other one? What happens if both are used?


As was eluded to in the above post, lien priority is determined by filing date.
Let’s say there is a first mortgage and a heloc on a property. If a refinance is done and the intention is to pay off both mortgages with one new first. Normally the first and the heloc would be paid off and satisfied… If the heloc is paid down but not off, but the first mortgage is paid off and satisfied, the heloc is still a lien on the subject property and in fact, it is now in first position since it’s filing date is prior to the new mortgage’s date. The new mortgage that is intended to be a first is now in second position.
Now the heloc has nothing on it, but still secures a lien for the total amount available. If you decide to use that heloc, there could be consequences. There is little doubt that somewhere in the mountain of paperwork that you signed, you signed something that says you acknowledge that the heloc will be paid off and satisfied, so by you using it, you could be held liable for fraud (or something) since you knew it was supposed to be closed.
I think ultimately the title company that did the new loan is on the hook, because guaranteed the new lender their lien position and by not closing it, did not live up to the promise they made to the new lender, but as mentioned above, you would probably have some liability as well.
There is a very long winded answer to a very short question…provide some more specific details, and I can direct my answer to your circumstance.

Well, my first mortgage is paid off in full and closed. I acquired a HELOC in '06 of 180k to purchase some investment properties. I refinanced that HELOC with my current bank. My current bank paid down the initial HELOC to 0. I found this out when I pulled my credit. So I have my current HELOC with a balance on it, and the old HELOC with a 0 balance.

I have the opportunity to earn over 200% ROI with a new ALF being built, and was thinking of using the old line for this if it could be used. Some have said that as long as the payments are made, it can be used. I’d have no problem making the payments (both HELOC’s are interest only) if they can be used. I was told that if I default on the loan that is the only way they could close it. Is that accurate information?

Since the title company didn’t secure lien position with my new HELOC…does this mean the lien position is still with the old HELOC? If that’s the case, my new HELOC is a HELOC in name only, and not secured…is it not? My new bank hasn’t made any mention of this.


Both of the HELOCS are secured by your property. Have you contacted the bank that holds the first HELOC and asked them the status? PA Dave is correct about the document you signed at closing, and another thing to consider is that by using both HELOCS you could end up owing more on your home than it is really worth. Just be careful. There are just as many horror stories on this board as there are success stories.