Equity Stripping with HELOC

[Sasang Doc]

Hello BPers,

I'm an LLC hoping to jump into bed with a sexy HELOC loan and strip down all my equity in an investment property.

My question for ya' all: Is the entire amount of HELOC credit protected from creditors? Or only the amount that I draw from it?

Thanks!!

-Gary

[Joe Splitrock]

Quote from @Sasang Doc:

Hello BPers,

I'm an LLC hoping to jump into bed with a sexy HELOC loan and strip down all my equity in an investment property.

My question for ya' all: Is the entire amount of HELOC credit protected from creditors? Or only the amount that I draw from it?

Thanks!!

-Gary

If you were sued and forced to sell the property, the net proceeds would be available. Also be aware that the property is securing the HELOC, but the interest expense is only deductible based on use. For example, you get a $100,000 HELOC on property A and use it as a down payment on property B. The interest expense from the HELOC is an operating expense for property B. If someone successfully sues you on property A and you were forced to sell, they could get access to the proceeds of the sale after the HELOC is paid off. If someone sued you on property B, that $100,000 would be equity and turn into proceeds after the sale. Even though you still have the loan against property A, you would have to keep paying the payment and wouldn't have anywhere to claim the interest. If the HELOC from property A was used for personal use, the interest (beyond returning share holder equity) wouldn't be deductible because it is not a business expense.

Also be aware if you are in the middle of a legal dispute, encumbering your assets with debt to protect them is not allowed. The court can disallow the LLC and give access to personal assets in a case like this.