Many homeowners take advantage of increasing equity in their homes by taking out what is commonly referred to as an ï¿½equity lineï¿½ of credit, drawing equity from their home as needed and paying interest on those funds. The equity line is a loan secured by the home and it allows the borrower to access funds easily often times by simply writing a check on the account.
Home sale and refinance transactions require the payoff of mortgages and these equity lines of credit. However, because of the ease by which equity lines may be accessed, often a borrower may continue to access funds right up until closing. This presents a problem for closing agents who will have performed a title search on the property and who will have received payoff information as of a certain date. Money that was withheld at closing to satisfy or ‘payoff’ the mortgages and any equity lines will then fall short. This presents a problem for the closing agent as well as the Seller.
To avoid issues such as this, a Seller should notify the closing agent in a home sale transaction if money is accessed from an equity line near the time of closing. Also, many lenders require that the borrower submit a letter requesting that the equity line actually be ‘closed’ not just satisfied. This is a matter for a Seller to investigate with the lender because if the equity line is not ‘closed’, but is paid off, it may affect the Seller’s credit in the future.
Equity lines can be easy money, but can become difficult at closing time if not addressed properly.