Wednesday, June 24, 2009

Another HELOC Is Filed

Last week we featured the Kimball case, where a California small business owner had her HELOC line closed - with the bank (WAMU, JP Morgan Chase) claiming that the property value declined, but an on-site appraisal revealed the property was 1.5 times the banks value. When her HELOC was arbitrarily closed down, she claims that it damaged her business.

Well, we know have word that there is a new case coming before the courts. This time the suing party had the lender shut their line down due to changes in income. The Schulken's (the party suing) states that their has been no change to their income so their line was arbitrarily shut down. This is another case involving a small business owner, who relied on their equity to run their business. When the line was closed the business suffered. This article at the PR News Channel titled JPMorgan Chase and WAMU Face More Lawsuits Over Home Loan Recalls. Let's take a look -

The suit alleges that Chase and WAMU had no reasonable basis to conclude that their borrowers’ finances had in fact declined and that the banks broke their written promises to provide customers with two weeks' notice to substantiate their incomes before taking such action.

The suit was brought on behalf of Jeffrey and Jenifer Schulken who allege that their HELOC account was suspended due to a supposed inability to pay the loan. But the couple – who run their own small business – continued to earn the same amount of money and never missed a payment.

Although federal regulations permit account suspensions when a customer’s financial circumstances adversely changes, such action requires both a material change in a borrower’s financial situation and the creditor’s reasonable belief that the borrower will not be able to repay the HELOC account as agreed.

The lawsuit alleges that Chase and WAMU had no such basis here.

“The Schulkens did everything right. They work hard, pay their bills, and have always honored their relationship with Chase/WAMU,” says attorney Jay Edelson, whose law firm, KamberEdelson LLC, represents the Schulkens. “What the banks did to them, and countless others, is simply not right.”


The second lawsuit, filed this week by Sherman Oaks attorney David Parisi, is brought on behalf of Garden Grove resident Michael Walsh. Mr. Walsh alleges Chase and WAMU reduced his credit limit after claiming his home had significantly declined in value. In addition to challenging the banks’ use of a faulty AVM, the Walsh case further takes issue with the banks' practice of freezing HELOC accounts based on lower declines in value than those permitted under the federal Truth in Lending Act.

We saw this coming over a year ago. The big question is how long this will drag out. But contracts were signed and agreements made. The lenders can not void the contracts just because of changes in the current economic environment. If there are problems with the contracts that is one thing, but just cancelling the contract because it was a stupid contract to make 5 years ago will not fly.

We will be watching for more lawsuits coming. Don't be surprised if this happens in all 50 states...

(h/t Steven for the link)

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