Can I Transfer a Line of Credit to Another Property?

Property used to secure a line of credit is called collateral. Real estate ranging from primary residences to undeveloped land serves as collateral, with creditors reserving the right to take the property if you default on the loan. Asking a lender to substitute collateral with another property will raise deep suspicions about your financial situation, with your request likely denied. Simply making the request could lead to a broad investigation of your finances, with forceful action by the bank possible if your finances are shaky.

Credit Review

Asking the lender to transfer collateral to another property likely will lead to a review of your credit report as the lender become suspicious about your motives. The lender may fear that you will default on the loan soon -- intentionally or unintentionally. Some people with say, their primary residence as collateral on the line of credit may want to protect the house by taking it off the loan. Such a move places them in a position to keep the property if they default on the line of credit. However, such transactions are not possible without the lender's consent

Strategic Defualt

Lenders are wary of some borrowers who plan so-called "strategic defaults." These borrowers voluntarily choose to walk away from mortgage loans and forfeit the collateral. Strategic defaults are common in the home mortgage industry during tough economic times or during a huge slump in the housing industry that causes housing prices to drop. A request to move your line of credit to another property may lead bankers to believe that you are planning a strategic default.

Counter Action

As a result the bank may react aggressively following a review of your credit and declare that the entire balance on the loan is due immediately. Some loans are regarded as "callable" by the lender, meaning the lender has the right to demand payment at any time. The feature exists in many loan agreements, but usually is not exercised if payments are on time and regular reviews of the customer's finances are satisfactory.

Foreclosure

Calling the loan could give the bank the right to seek foreclosure on the property currently held as collateral. At a minimum, the bank may close the line of credit, eliminating any further charges or withdrawals. The only effective way to remove the current collateral from the line of credit is to pay the loan off. One strategy could include selling off other assets and using the proceeds to pay off the credit line.