Monday, June 15, 2009

Let the HELOC Lawsuits Commence

We have been waiting and waiting for the HELOC lawsuits to begin. Homeowners throughout the country have seen their lines closed off due to changes in the economic landscape. The big problem has been that many HELOC were closed early just to have them get off the lends books. But now Chase and WAMU are facing a class action brought by an angry homeowner who had her line cut indiscriminately. The homeowner was one of the many who used her HELOC to help run her business. So when the HELOC was arbitrarily shut down her business was in trouble. But knowing she still had equity in her property (which many do) she has fought back. From this post over at Trading Markets titled Chase and WAMU Illegally Froze, Reduced Home Euqity Credit Lines Lawsuit Claims briefly tells the homeowners saga. And also provides the info for others that need to join. Let's take a look -

Despite recent assurances by CEOs that banks are using the $700 billion in taxpayer TARP funds to lend money to cash-strapped home and business owners, Washington Mutual Bank (WAMU) and its new parent, JPMorgan Chase (Chase) (NYSE:JPM), are not only failing to live to their promises, they are squeezing consumers by freezing or reducing their home equity lines of credit, according to a federal class action lawsuit filed today. The suit alleges that WAMU, which is now operated as a division of Chase, has been systematically reducing and freezing customers home equity credit lines. According to the suit, filed in the Southern District of California, the banks used flawed automated valuation models (AVMs) to intentionally understate home values so they could create a pretext for freezing its customers HELOC accounts. The lawsuit is brought on behalf of Michell Kimball, a small businesswoman in Escondido, California. Kimball first learned that Chase had frozen her WAMU credit line when a check she had drawn on the account was dishonored. Chases actions threatened her home and the viability of her business. According to Kimball: Because I didnt have access to my credit line, I was unable to pay my suppliers. I was able to negotiate extensions from them, but if not, Im not sure what would have happened. The lawsuit alleges that when Kimball contacted customer service, Chase claimed that an AVM showed Ms. Kimballs home had lost a significant amount of its available equity. The bank refused to provide information to support that assessment. A later appraisal told a different story: It showed that the home was actually worth more than 1.5 times Chases AVM estimate. After Kimballs lawyers intervened, Chase restored her credit line, but did not reimburse her for her losses. The lawsuit seeks class action treatment for Chase and WAMUs actions in the reductions, alleging that Chase and WAMU have intentionally used inaccurate formulas to produce low-ball home valuations as a false justification for freezing thousands of such credit lines. Although federal law mandates that a significant drop in value must first occur and requires that banks act with a sound factual basis in each case, the lawsuit claims that these banks are doing whatever they can to reduce HELOC credit limits or suspend the lines altogether even if it means, in some instances, ignoring the law. The message to former WAMU customers and others is clear: Chase is coming after your home equity credit line, said attorney Jay Edelson, whose firm, KamberEdelson, LLC, previously filed a similar lawsuit against CitiBank. When banks take billions of dollars in taxpayer money, they have an extra duty to follow both the letter and the spirit of the law. We believe that congressional hearings should commence immediately, Edelson explained. Edelson is joined on the suit by KamberEdelson attorneys Michael McMorrow, Steven Lezell and Alan Himmelfarb.

To download a copy of the lawsuit, please visit About Jay Edelson: Edelson ( has a reputation for bringing, and winning, high profile class action lawsuits. Just last year, Edelson settled a nationwide case involving lead painted Thomas the Tank & Friends Wooden Railway childrens toys that was valued at over $30 million. Edelsons firm also was lead counsel in the lawsuits coming out of the 2008 contaminated pet food recall, which resulted in a settlement of over $24 million. Edelson testified before the U.S. Senate in connection with that case.

We expect these to follow throughout the country. Many homeowners with equity and without risky mortgages have been penalized. One big problem with the bubble is that the external damage to honest homeowners that have played by the book all along.

Hat tip to Steven for linking us to the info!

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