JP Morgan Chase Bank-HELOC

FRANK V. JP MORGAN CHASE BANK, ET AL., NO. 2009-CV-03408 (E.D. Cal.)


Abbey Spanier, LLP commenced a class action lawsuit in the United States District Court for the Eastern District of California (Case No. 2009-cv-03408) on behalf of a class of all persons in the United States who had a home equity line of credit reduced or suspended by JP Morgan Chase (“Chase”) where Chase maintained, based on faulty valuation models (“AVMs”) or insignificant declines in property values, that the reduction or freezing was due to a substantial decline in the value of the property securing the home equity line of credit.  The action was also brought on behalf of a notice subclass consisting of all class members in the United States who received from Chase a notice entitled: “Important Notice About Your Home Equity Line of Credit” and Frequently Asked Questions.”  

The complaint alleges that in an attempt to reduce their exposure to the depressed United States housing market, Chase and Washington Mutual Bank (“WAMU”) (which was acquired by Chase in September 2008 with the approval of the Federal Deposit Insurance Corp.) illegally reduced and suspended credit limits on home equity lines of credit across the country.  

In April 2009, class members received a letter from Chase stating that their home equity line of credit accounts were suspended or reduced because of a significant decline in the value of their homes.  The complaint alleges that Chase lacked a sound factual basis for sending these letters and that it used automated valuation models to unreasonably undervalue the homes so as to falsely trigger its right to freeze or lower the credit limits under the Truth in Lending Act, Regulation Z.  Regulation Z allows a lender to reduce or suspend a home equity line of credit when there is a “significant decline” in the subject property value, which has been interpreted to mean a value whereby “the initial difference between the credit limit and the available equity (based on the property’s appraised value for the purposes of the plan) “is reduced by fifty percent.”  The complaint alleges that in calculating whether a “significant decline” occurred, Chase failed to consider the pay down of the first mortgage and other circumstances which may increase the value of the collateral of the subject property since the time that the loan was made.  Further, the complaint alleges that the notice sent by Chase to hundreds of homeowners nationwide fails to provide sufficient information for the homeowners to determine whether they should spend the time and resources to get an appraisal and seek reinstatement of the home equity line of credit as required by Chase’s appeal process.  

The complaint also alleges claims for breach of contract, breach of implied covenants, unjust enrichment and violation of California’s unfair business practices statutes.  Plaintiffs seek injunctive relief and damages for the increased price of credit, lost use of the HELOC funds, adverse effects on credit scores, loss of interest, appraisal fees, annual fees imposed on class members by Chase for maintaining their home equity line of credit accounts, among other damages.