Protecting your HELOC portfolio: The need for ownership monitoring

Demand for Home Equity Lines of Credit, known as HELOCs, has been steadily increasing.

The total amount owed on HELOCs reached about $422 billion in the summer of 2025, according to the New York Federal Reserve. This is an increase of over $100 billion since the lowest point of this market in 2022.

However, this increase in borrowing is also quietly increasing a serious, often forgotten risk: borrowers changing the legal ownership of their property with an open balance on their HELOC.  When a homeowner transfers ownership to someone else while keeping an open balance on their HELOC, it can weaken, reduce the legal priority of, or even completely remove the servicer's security interest against the borrower’s unresolved debt. This basically changes the HELOC from a secured instrument, backed by the value of the property, into an unsecured instrument that is no longer protected by the home all the while keeping a line open to draw additional funds from.

This is a major concern for servicers – companies that manage and collect mortgage and HELOC payments because they often hold these HELOCs on their books. This means the risk directly affects their own financial stability. To understand why this risk exists, we need to look at the main protection servicers use.

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The due-on-sale clause: A safety measure with flaws

Servicers primarily depend on a clause within the mortgage contract called the due-on-sale clause. This rule allows the servicer to demand that the entire loan be paid back immediately if the house is sold or transferred to a different person or entity.

A federal law in the U.S., the Garn–St. Germain Depository Institutions Act of 1982, generally makes sure that servicers can enforce these due-on-sale clauses across the country.

But for servicers, especially those holding HELOCs and second mortgages, this safety measure is not perfect. Transfers that happen without the servicer's knowledge, such as putting the home's title into a Limited Liability Company (LLC), partnership, or corporation, or gift of property to someone other than a spouse or child, should legally allow the servicer to call the loan due. The issue is simple: the servicer can only enforce the clause if they know the transfer has happened.

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A common situation

Let's look at a typical example:

• The  setup: Homeowner A, for example, has a $65,000 HELOC, which is in the second position behind their first mortgage that has an excellent interest rate. The loan paperwork contains the standard due-on-sale language.
• The transfer: Without telling the HELOC servicer, Homeowner A signs a document called a quitclaim deed, which transfers the property to an entity like "XYZ Family Holdings, LLC."
• The law: The federal Garn–St. Germain Act does not make an exception for transfers to an LLC, so the servicer should have the option to demand the loan be paid back.
• The reality: In practice, most servicers only take action when they have been specifically notified about a transfer.

The transfer is completed when the quitclaim deed has been signed and then recorded with the county office. Because county recorders only check that the document meets formal filing requirements, like proper signatures and fees, the HELOC servicer remains completely unaware of the change in ownership and likewise the danger to their lien position.

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Why servicers miss this

Most companies that service HELOCs do not automatically receive a notification when a new deed is recorded. They usually find out only through:

• Occasional credit reports: Seeing a shift in the homeowner's financial standing.
• Missed payments: The homeowner falling behind on a payment.
• Manual checks: Running a title search when the loan is in serious delinquency or when the homeowner asks to refinance.

In addition, because the Garn–St. Germain Act protects certain types of transfers, like moving the title into a simple living trust where the original borrower is still the main recipient, operational teams tend to be cautious about enforcing the due-on-sale clause.

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The "Blind Period" and what can go wrong

During the months after the transfer that the servicer did not approve, everything appears to be normal. Homeowner A continues to make payments, and the servicer’s system still lists them as the owner. No warnings are triggered.

But during this "blind period," major problems can arise:

• The new LLC owner might sign a short-term lease, suggesting the property is now being used for rental income or an investment.
• A criminal could take advantage of the new ownership chain. Scams involving people pretending to be the owner and using forged deeds are increasing,  allowing an illegal sale or a new mortgage to be placed on the property if security measures are weak.

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When the problem is found

The issue usually only comes to light much later, typically in one of two ways:

• The new owner attempts to refinance the loan.
• The servicer in the first position contacts the HELOC servicer with a request to subordinate, asking the HELOC servicer to agree to keep their loan in the second priority position while the first mortgage is refinanced. This request exposes the new entity as the current owner.

A servicing analyst finally checks the ownership and discovers the quitclaim deed that was recorded months ago. The servicer now knows a transfer happened without their permission, which is a technical event that triggers the due-on-sale clause.

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The servicer’s weakened position

At this point, the servicer’s primary option under the contract is to accelerate the HELOC, meaning to demand the entire balance be paid immediately. But this can be too late.

During the months the servicer was uninformed, the servicer’s security could have been severely compromised by things like new liens, which are debt claims against the property, or in some states, legal actions by a homeowner’s association that could potentially take priority over the recorded HELOC. These problems highlight the extreme danger of not knowing about transfers right away.

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The solution: Consistently checking the loan portfolio

The main problem is that deed recordings are kept in county land records, not in the servicers' own systems for monitoring credit or payments. Furthermore, internal teams struggle with the difficult task of correctly telling the difference between transfers that allow the servicer to enforce the due-on-sale clause, like those to an LLC, and those that are protected under the Garn–St. Germain Act, like certain family or trust transfers. This is nearly impossible to do systematically without reliable data.

HELOC servicers that use Portfolio Intelligence and Monitoring gain a significant advantage through its continuous tracking of new activities and transactions reflected in the county land records.

Portfolio Intelligence and Monitoring flags things like:

• Changes in ownership status, for example, from an individual to an LLC.
• Quick, consecutive transfers of the deed, raising the possibility of transfers without consent.
• Additional debt claims against the property which may affect lien priority, like Homeowners Association or tax liens.

With this early knowledge, a servicer can contact the homeowner within days of the deed being recorded, apply the correct legal rules, and take action to make sure the collateral is protected before its value is reduced or completely lost. In today's expanding HELOC market, this type of consistent monitoring is not just helpful, it is necessary to protect the value of the loan portfolio.