By CATHERINE TOMASKO, ESQ., Andrews Publications Staff Writer
Chase Bank and its recently acquired division Washington Mutual Bank have been illegally freezing customers' home equity lines of credit across the country, a California woman alleges in a federal court lawsuit.
The class-action complaint, filed in the U.S. District Court for the Southern District of California, says Chase and WaMu intentionally used faulty formulas that undervalued customers' homes, providing a false basis for lowering credit limits.
Federal law prohibits banks from reducing home equity credit limits without a "sound factual basis" for concluding that the home has significantly declined in value, the complaint says.
The suit was filed by Michell Kimball, a small-business owner in Escondido, Calif., who took out a $500,000 home equity credit line but later learned that Chase had frozen her account.
When she contacted the bank's customer service department, a representative said her property value had dropped to about $731,000 and that a value of at least $812,700 was necessary to reinstate her credit line, the complaint says.
Kimball obtained an appraisal valuing the property at $1.15 million, well over Chase's valuation, and the bank eventually restored her credit line, the suit says.
Kimball filed the suit on behalf of herself and other Chase and WaMu customers whose home equity credit lines have been reduced or suspended based on "dubious" valuation formulas.
According to the complaint, the companies have sent form letters to thousands of home equity credit line customers saying their credit lines were being suspended because of a decline in the value of their homes.
The letters said the determination was based on a "proven valuation method" but gave no details of the banks' calculations, the complaint says.
As a result, the defendants have "denied their customers access to hundreds of millions of dollars worth of credit at a critical time," the suit says.
The credit reductions are "unconscionable," given Chase's receipt of $25 billion in government bailout funds to allow it to continue to lend money, Kimball says.
She is seeking unspecified damages, interest and attorney fees.
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Kimball is represented by Alan Himmelfarb of Kamber Edelson in Los Angeles and Jay Edelson and Steven L. Lezell of the firm's Chicago office.
Kimball v. Washington Mutual Bank et al., No. 3:2009-cv-01261, (S.D. Cal. June 9, 2009).
Bank & Lender Liability Litigation Reporter
Volume 15, Issue 04
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