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Can equity influence a real estate transaction?

According to a recent report, home equity lending is up by over twenty percent from a year ago.

Specifically, one real estate data firm examined lines of credit issued to homeowners who wanted to leverage some of their home equity. Across the country, nearly 798,000 home equity lines of credit, or HELOC loans, were issued in 2014. 

A HELOC can offer several attractive features. Borrowers may be able to choose between variable or fixed rate advances, make additional principal payments without penalty, and have options for paying closing costs from their loan proceeds or with a higher interest rate.

As the housing market continues to improve, a HELOC loan may also be a viable option for more Americans: The data indicates that around 19 percent of home mortgage holders have equity levels in their homes at 50 percent or higher.

As a real estate attorney knows, equity can be a negotiation tool in real estate transactions. A buyer of vacant land or a new project developer without a lot of cash may request that the seller agree to subordinate his or her equity to the buyer's construction lender. Of course, the seller being asked to subordinate in such a scenario could also be a bank, rather than an individual. 

Yet there may also be risks to subordination. A real estate attorney can help advise a seller on whether the benefits -- such as closing a transaction -- might outweigh the risks in a particular transaction. If a buyer has other collateral that might protect the seller, than subordination might be a smart choice, depending on the circumstances of the deal. 

Source: Baltimore Business Journal, "The HELOC is back. Home equity lending is on the rise," Oct. 9, 2014

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