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TJ, Esq.
TJ, Esq., Attorney
Category: Real Estate Law
Satisfied Customers: 12207
Experience:  JD, MBA
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I owned my home free and clear. My bank approached me about

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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?
Hello and thank you for allowing me the opportunity to assist you.

No, you shouldn't have anything to worry about. The bank made a mistake, which hurts the bank and benefits you. Obviously, securing the line of credit with your property is disadvantageous for you (only if you stop paying the line of credit, of course), but I suspect that you already know that. Also, it's possible that the legal doctrine of equitable subrogation could be successfully used to argue that the line of credit is secured even without you consenting. So, it probably makes sense to just comply with the bank's request if you intend to maintain a good relationship with the bank.

As far as other issues, you didn't write anything here that would lead me to believe that there are other potential pitfalls to worry about.

Does that answer your question? Please let me know if you need clarification, as I am happy to continue helping you until you are satisfied. Also, your positive feedback is much appreciated. Thank you for using our service!

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