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HELOC Suspected of Being Used for Money Laundering

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Question: 
Does a financial institution have the right to accelerate the payoff of a HELOC and terminate the line if it is suspected that it is being used for money laundering?
Answer: 

You are limited on the right to accelerate unless one of the following conditions apply:

(f) Limitations on home equity plans. No creditor may, by contract or otherwise:

(2) Terminate a plan and demand repayment of the entire outstanding balance in advance of the original term (except for reverse mortgage transactions that are subject to paragraph (f)(4) of this section) unless:
(i) There is fraud or material misrepresentation by the consumer in connection with the plan;
(ii) The consumer fails to meet the repayment terms of the agreement for any outstanding balance;
(iii) Any action or inaction by the consumer adversely affects the creditor's security for the plan, or any right of the creditor in such security;
(iv) Federal law dealing with credit extended by a depository institution to its executive officers specifically requires that as a condition of the plan the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement.

The commentary indicates that illegal use of the property by the consumer would permit termination and acceleration if it subjects the property to seizure. If the customer is convicted of money laundering, it could subject the property to seizure so you may be able to utilize that option. I would work with your attorney on this issue to make sure that your beliefs are well founded.

First published on BankersOnline.com 6/11/07

First published on 06/11/2007

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