If you never take any advice dished out in this blog, please make an exception today. If you have an equityline, YOU NEED TO TAKE ACTION TO PROTECT YOURSELF from a liquidity crisis.   You have the opportunity to out maneuver the bank and protect your financial health in these trying times.

But you need to act NOW. Time may be running out. Take your money out of your equityline before it is too late.

You are in danger of having your equityline frozen by the lender. What does this mean? If the limit on your line is $150,000 and you have only used $50,000, freezing the line means you must still repay the $50,000, BUT YOU NO LONGER MAY ACCESS (spend) that remaining $100,000.

Can you see how this just might become a financial disaster to someone?

Can they do this? You betcha. And they are doing it at lightning speed to many borrowers and without discrimination and warning. Equitylines are disappearing faster than $3.00 gas. My co-workers and my clients are calling with plenty of stories about their financial lives being turned upside down as a result of one of those depressing letters.

Dear Wonderful Bank Customer: You have always paid us on time. But we have reviewed your file and decided to freeze you out of $100,000. Your line has been closed.  Go ahead and appeal if you like. (LOL). We won't be changing our mind, even if you are out of YOUR mind with panic.

Why is this happening? Equitylines are second loans. When a lender sells a house that has been in foreclosure chances are, it is worth less than the combination of the first loan and the second loan. The proceeds of the sale pay the first lender FIRST. If, and only if, there are any proceeds left, the second lender gets paid.

Let's just say in this market, lots of second lenders have been left holding the bag. And they aren't about to take any chances it will happen again. Not only are new second loans all but impossible to secure, those already existing are being snuffed out.

Rather than tell you the depressing stories about how this has affected many of my clients, let me give you the following advice:

Immediately write a check from your equityline account for whatever open credit your equityline still has. Place this money in a separate interest bearing account (somewhere where you will not be tempted to use it). The bank cannot freeze you out of money you have already borrowed.

I had given this advice about a month ago to all of my clients and Realtor partners.  I am sad to say I am now getting calls regretting that they ignored/delayed too long. They have gotten "the letter".

Yes, you can refinance to cough up the cash. But this is more expensive (because you must pay closing costs) and far more risky (since declining values may prohibit you from completing the refinance).

Have I taken my own advice? Yes. Have I received "the letter"? No. But my bank is sending them out right and left. I feel much safer knowing that my money is tucked away.

If it costs me the difference between the interest rate I PAY for borrowing and the interest rate I GET for my savings account, well that is the price of liquidity.

Liquidity RULES.

Written By Janet Guilbault, California Mortgage Expert Based Out of the San Francisco Bay Area