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KASS: Costs incurred with unused HELOC

DEAR BENNY: Ten years ago when I bought my current home for cash and had no mortgage, my banker convinced me I should have a $250,000 HELOC. Not knowing what I know now, I took it. He said no costs if I didn’t use it. Not true!

When I went to use it for home improvements, that fixed HELOC interest rate was much higher than other possible loans. However, I could not negotiate a lower rate with that lender nor could I get the other loans because this HELOC was like having too many credit cards. Other lenders said that even though I had not yet used it, I had the opportunity, just like having many high limits on credit cards. I should mention I had money in the bank to cover the HELOC potential. My credit score was, and still is, excellent.

So, I paid $500 to get rid of that loan and lowered the limits on all of my credit cards. It cost me $500 to get rid of that HELOC loan but over time I have saved that amount and more. The loan I finally got was 6 percent rather than the HELOC 8 percent, which I later lowered to 4.25 percent. Now I do business at a credit union where I feel I am dealt with honestly. – Judy

DEAR JUDY: I am sorry to hear about your problems with a HELOC; you are the second reader who has advised me of problems with a home equity line of credit (HELOC).

I may want to rethink my enthusiasm for these kinds of loans. I have consistently recommended my readers get a HELOC; it’s like having cash in your cabinet drawer. You have the right to issue checks –up to the limit of the HELOC – and you only pay interest on the moneys you actually take out from the HELOC.

If you decide to get such a loan, please review the terms and conditions. Is there a fixed interest rate? Is there a cancellation fee? When will the HELOC terminate? What happens if you sell the property? What if you refinance, will the HELOC remain on the books?

If you haven’t resolved your concerns, I recommend filing a complaint to the Consumer Financial Protection Bureau (CFPB). From my experience, banks must respond promptly when they receive a complaint from CFPB. For more information, go to consumerfinance.gov.

You definitely want to find out why you were charged anything to release the HELOC from land records. Read your contract – your written agreement – with the lender and see what it requires and what it covers.

DEAR BENNY: I am furious with my attorney. I signed a contract to buy a house, and gave my attorney a check in the amount of $25,000 to hold as the good-faith earnest-money deposit (EMD). There was a home inspection contingency, and after I had the property inspected, I decided I did not want to buy. I told the seller within the contingency time limit of my decision and then asked my lawyer to give me back my deposit. He indicated that until the seller agrees, he cannot refund the deposit. What’s going on? Why not? – Diedre

DEAR DIEDRE: Although it is your attorney who is holding the EMD, he holds it in an escrow capacity. That means he holds the funds in trust for both parties. Case law throughout the country makes it clear there are only two ways an escrow holder can release the funds he or she is holding: (1) if all parties to the contract agree in writing or (2) a judge authorizes the release.

You are not justified in being angry at your lawyer for not agreeing to release the funds. But you are justified if the lawyer did not tell you he has to hold the funds in escrow.

More importantly, he should have modified the sales contract to say: “If the buyer opts not to buy based on the inspection contingency, the EMD will automatically be refunded to purchaser without demand or objection.” This language would have given you back your deposit.

Hopefully, the seller will agree to release the funds; otherwise, your only alternative is to file suit against the seller.

Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: mailbag@kmklawyers.com.

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