A lawyer has warned US mortgage holders to treat requests for letters of credit (L/Cs) by lenders suggesting that their homes would be protected by doing so with some caution.

In a reply to a San Francisco Chronicle reader's question, Washington attorney Benny Kass said he was "leery" about the cold call the reader had received from the lender who suggested the L/C protection.

Cold call

The reader had received a telephone call from a person working for the company that holds the mortgage on the family home. The mortgage will be paid off in the next few years and the current balance is US$20,000 the reader divulged.

The cold caller, working for the lender, suggested the reader should take out a L/C, secured by the home. This would not cost anything, the reader was told, unless the mortgage holders were to draw on the credit.

Forestall foreclosure

This, according to the caller, would forestall foreclosure on the home if for some reason the mortgage holder was sued and the plaintiff sought recovery by claiming against the home.

Kass said he believed that US homeowners should have a home equity line of credit in case emergencies arise and pointed out that interest would only become due if the credit was drawn upon.

Caution

However, he said, "I am always leery when I hear about these cold calls. Your lender is looking for business."

The lawyer also raised questions about the reasons the caller gave for opening the credit and suggested that people mulling this option should shop around to find the best deal.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.