Illinois Homeowner Sues Chase over HELOC Freeze

A new form of lawsuit against mortgage lenders is evolving amid the tight credit environment. Rather than alleging lenders made misleading or predatory loans, consumers are now filing suit over lenders refusing to extend credit. A Zion, Ill. homeowner, Pascal Majon, is suing JP Morgan Chase (JPM) over alleged fraud to deny homeowners access to funds through their previously approved home equity lines of credit (HELOCs). The servicing rights of Majon’s mortgage, originated by Washington Mutual Bank, transferred to Chase after it bought WaMu’s banking subsidiaries. Chase then froze Majon’s home equity line of credit, citing a decline in the value of his home. “In reality, Majon’s home did not decline in value,” according to a press statement out of KamberEdelson, the law firm representing Majon. The complaint states Chase failed to identify valuation methods or provide the dollar amount of the property’s new value or percent of value decline. “In an attempt to limit their exposure to the risk of collapse in the United States housing market and rid themselves of less-profitable loans, Defendants have broken contractual promises to their HELOC account holders by reducing or freezing these customers’ credit limits without first reasonably assessing the value of each affected property,” the complaint reads, in part. The suit alleges Chase failed to provide homeowners with legally required notice and improperly discouraged them from seeking reinstatement by withholding critical information. In some cases, the complaint alleges, the home valuation for reinstatement was never supplied or homeowners were forced to pay for an appraisal to challenge the HELOC adjustment. “These credit lines are safety nets,” said Jay Edelson, whose firm filed the class action suit on Majon’s behalf. “Knowingly suspending these accounts without justification and forcing customers to scramble to find alternatives — like high interest credit cards — is just the kind of thinking that got banks into the trouble they’re in in the first place. They act as if they’re accountable to no one.” Chase declined to comment on pending litigation. Write to Diana Golobay. Disclaimer: The author held no relevant investments when this story was published.