San Antonio Express-News
September 23, 2003

Can Homestead be Lost over Credit Card Debts?

copyright 2003, Paul Premack

You are struggling to do the right thing by everyone, which is an honorable and difficult course to follow. This economy has been challenging for a lot of people. Top that off with your poor health, and I can sure understand your struggle.

The mortgage on your home and the loan on your car are probably your only secured loans. That means if you fail to pay the mortgage, the lender can foreclose upon the house, and if you fail to pay the car loan they can repossess it.

On the other hand, your credit card debt is an unsecured loan. It is based on your promise to pay, but is not tied explicitly into the things that you have purchased. The credit card company's biggest weapon against you is compound interest.

Even the "reasonable" credit card agreements allow interest at 15%, and I recently saw one card that allowed nearly 25% interest on amounts that have gone into default. At that rate, your failure to pay the $20,000 debt would double to $40,000 owed in less than three years. The huge interest burden imposed by credit cards results in an awfully large percentage of bankruptcies.

You ask if the credit card bank could buy your mortgage loan so they can foreclose. Theoretically they could buy your mortgage if it was offered for sale by your current mortgage company. Loans are often sold, buy typically they are sold in a bundle with hundreds or thousands of other loans. It is highly unlikely that your credit card company would single out your mortgage, because even if they buy your mortgage they cannot tie the mortgage debt and the credit card debt together. Keep making your mortgage payment, and your home is protected by Texas law.

There is only one way a person's home can be put at risk due to their credit card debt: taking a home equity loan to pay off credit card debt. The debt still exists (probably at a lower interest rate) but it is secured with a lien against the home. Now, failure to make the payments could result in foreclosure against your home.

Many banks push home equity loans, and they can be useful in the right situation. But when you look at the situation from the perspective of someone who is already at risk (poor health, tough economic times) you've got to protect your home above all other obligations. My book, The Senior Texan Legal Guide, 4th Edition, has an entire chapter on protection of the homestead, protection from creditors, and equity loans. Take a look at my website to find out more about the Guide. (click here).