I owned my home free and clear. My bank approached me about establishing a HELOC
on the property at an attractive rate. I agreed and we established the HELOC.
I used the HELOC to purchase an investment home for $180k. Shortly after, my bank convinced me to do a cash out re-finance on my primary to lock in a good rate. I did this and the proceeds of the cash out paid off the HELOC. At that point, I forgot about the HELOC.
A month later, my bank asked me if I wanted to link my banking accounts to my line of credit for overdraft protection. Since I do substantial business with the bank, I assumed that they had converted the HELOC to a line of credit so I obliged.
Shortly after, I used the line of credit to purchase another investment property.
Today, the bank contacted me and said that they accidentally forgot to close out my HELOC when I did the cash-out re-fi, and they did not have anything to secure the line of credit I'd used.
I've agreed to secure the line of credit debt to another property I own free and clear.
My question is this: do I have anything to worry about from a legal perspective since I used the line of credit?