HELOC can become due and payable

As property values fall, banks are adjusting the available limits to their customer's Home Equity Lines Of Credit. In many cases, if the current balance of the loan exceeds the determined available equity, the bank can demand that the difference be paid immediately. But worse than that, the bank can legally seize, without warning, money from the borrower's other accounts with that bank to satisfy the loan balance. These days there are plenty of reasons not to do all of your banking in one place and this is just one more.

Consumer advocate, Clark Howard writes:

Bank lending on the wane

"The giant banks are tightening their purse-strings when it comes to lending, according to a recent report in The Wall Street Journal.

The disturbing thing is that the federal government spent more than $1 trillion in an effort to put money back into the economy and get lending going again.

But the banks are instead holding that money close and using it as a cushion to avoid insolvency.

The Wall Street Journal has a chart that shows month-by-month lending activity from the banks that got the federal money. The lending over a 5-month period has dropped by a fourth so far. In one example, JP Morgan Chase has reduced its lending by 35%.

So here's what you need to know: If you're a business with an open line of credit or a homeowner with a HELOC, Clark wants you to draw down those lines now before the banks cut them off. Be sure to deposit the money at a different bank or credit union. That last part is very important.

In most loan agreements, there's a clause that allows the bank to claw back the money owed on a loan if they suddenly call it due. So if it's sitting on deposit at the bank, they'll just help themselves to your account to get it. No notice provision is necessary. You could easily wind up bouncing checks and there's nothing you can do about it.

Sure, it's convenient to do your borrowing and depositing at the same place. But it's a very risky move in today's high-stakes banking environment. "

The following general clause appears in most home equity loan contracts. Read yours carefully.

POSSIBLE ACTIONS

We can terminate your Account, and require you to pay us the entire outstanding balance in one payment if: you engage in fraud or material misrepresentation in connection with the Account; or, you do not meet the repayment terms; or, your action or inaction adversely affects the collateral or our rights in the collateral; and/or, federal law dealing with credit extended by us to you specifically requires that as a condition of your Account the credit shall become due and payable on demand.

We can refuse to make additional extensions of credit or reduce your credit limit if: the value of the dwelling securing the Account declines significantly below its appraised value for purposes of the Account; or, we reasonably believe you will not be able to meet the repayment requirements due to a material change in your financial circumstances; or, you are in default of a material obligation in the Agreement; or, government action prevents us from imposing the annual percentage rate provided for or impairs our security interest such that the value of the interest is less than 120 percent of the credit line; or, a regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice; and/or, the maximum annual percentage rate is reached.

The initial Agreement permits us to make certain changes to the terms of the Agreement at specified times or upon the occurrence of specified events.

That's it. Hope all this is helpful to somebody.

GB