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Word just in from one of our friends, Scott Todd - a local Realtor in Fort Lauderdale, FL that could affect many of our friends and family. It seems not only are the banks and mortgage companies making it harder to get new loans, but they have started taking back access to equity lines they have already granted in light of declining property values.

We have stated in previous articles and blog posts that lenders reserve the right to freeze a line of credit on property that has been damaged in the aftermath of a hurricane. If the lender's collateral is no longer there or is damaged, then they may not allow homeowners to access the available credit when a homeowner may need it most. According to Todd, though, his line of credit was frozen due to a drop in property value - even though there is nothing wrong with the home.

We have said it countless times before - money in property is not the same thing as money in the bank. It may not be there to "withdraw" via a loan or line of credit when you need it most. Thankfully, our friend wasn't put in jeopardy by this situation, but there may be people who are using their line of credit as a savings "account" and have their money in the line of credit instead of the bank. If the bulk of someone's savings is suddenly trapped in their home, it could be devastating for them.

Right now, with the market in flux, the safest place to have your money is where you can get it easily - in the bank or some other account instead of your house. If you were planning on using money from an equity line of credit some time this year or next, you should really look at the option of taking it out of the property now. Perhaps using a larger first mortgage product - rates are very low right now on fixed rate loans. Just don't leave yourself at the mercy of bank policies that will be aimed at protecting their interest instead of yours. We will give you straight answers and options so you can make the best decision no matter what your circumstances.

Scott Todd is a Realtor with Charles Rutenberg Realty www.cstrealestate.com

"Too late...they did and it destroyed me."

This was the reply email I got from a friend (will remain nameless) after I sent out my warning email about Countrywide freezing Home Equity Lines of Credit.  If you missed it I had heard from a Ft Lauderdale Realtor that Countrywide made a decision to freeze his HELOC because of a decline in his property value.   It is my understanding there was no notice before informing him he could no longer access his credit line. 

I asked my friend who sent my this reply and he said Chase.  So now I have gotten feedback about two major national lenders shutting off access to Home Equity Lines of Credit.  As we have seen over the past year in the lending business - changes happen in waves and they cover the whole industry.  I certainly hope that no other lenders will follow suit, but why take chances if you don't have to? 

What should you do?

If you have a line of credit against your property, and you think you may need or want to tap into that equity anytime in the next 12-18 months, you may want to take it out now.  This way you will definitely have access to it.  Lenders can't make you pay it off if you already owe it and are paying on time, but they can keep you from borrowing it, like they did to my friend above.

But I will be paying interest?

True - you will.  But you can offset part of this by sticking the money you borrow in an account and earn some interest at the same time. So if you pulled money out of a Line of Credit and were getting charged 7.5% by the lender, and you could get 5% on a money market at the bank, then it would really be costing you 2.5%.  So under these circumstances it would end up costing you...

Less than $21 per month to have $10,000 available to you.

And for every extra $10,000 you would keep available, it would cost you another $21 - so $42 for $20,000, $63 for $30,000, etc.  Is it worth it to pay this?  Your call.  The real question is do you think you will need this kind of money over the next 12-18 months.  Do you have another source for it?  Keep in mind - I don't get any benefit by you taking money out of your equity line - even if I put the line of credit in place for you.  I just don't want to see anyone I know get caught in a pinch, when they could have easily avoided it. 

In case you are not sure whether you should have extra money around here is a list of common reasons someone might need extra assets short term:

Emergency Fund (most planners reccommend 6 months of your income)
College / Education Expenses
Opportunity Fund (there are great buying opportunities now)
Start a business
Divorce
Marriage
Baby
(previous three in no particular order )

You may not yet know the reason you may need money....

You If you do what I am suggesting and take money out of your home equity line, you can always pay if back, you just won't be able to get it once your lender decides to freeze the account.  In my opinion - its better to have and not need than to need and not have.

The lending and mortgage business may take a while to recover.  You should take action now if it is in your best interest.

Real estate prices cannot be helped by any of this, and it is likely that the market will continue to get worse before getting better.  If you are going to need a new loan anytime soon on property that you already own - now is a good time to act...over the next year the options you have available are certain to decrease...

You should take an inventory of your financial state of affairs - if you want some advice on what your options regarding your money, house, and mortgage are - I'm always happy to help - no obligation - just call 954-217-9518, or visit at Florida Mortgage