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Borrowers Are Suing Banks for Cutting Off HELOC Lines of Credit

A federal district court in Chicago has given the green light to clients of JPMorgan Chase Bank to proceed with a consolidated suit alleging that their equity lines were yanked or reduced illegally, costing them billions of dollars in lost borrowing power. Judge Rebecca Pallmeyer rejected the bank’s motion to dismiss the case, clearing the way for a possible giant class action.

The litigation pulls together eight separate suits seeking class certification filed by homeowners in California, Minnesota, Illinois, Texas, Arizona and Ohio. It is considered a bellwether test of the rights homeowners enjoy under the Truth in Lending Act and state consumer protection statutes when they take out equity lines of credit.

But it also shines light on the controversial computerized tools many lenders use to make quick, inexpensive assessments of property values in lieu of more costly professional appraisals. Suits on similar grounds are pending against other major lenders, including Wells Fargo & Co., GMAC Mortgage and Citibank, according to attorneys.

The plaintiffs’ lawyers not only are challenging JPMorgan Chase’s legal right to rescind or limit credit lines without adequate documentation that property values have dropped “significantly” — as required by the truth in lending law — but are also mounting a side attack against automated valuation models that they contend are frequently inaccurate and unreliable.

The computer valuations used by JPMorgan Chase were found to be “grossly in error,” based on subsequent physical appraisals, said Steven Lezell Woodrow, a partner with Edelson McGuire, the Chicago law firm representing the plaintiffs.

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Arbitration Clause in CAR Independent Contractor Agreement Invalid

The Appellate Court in Orange County has determined that the arbitration clause in CAR’s Independent Contractor Agreement (Form ICA) is invalid. CAR publishes contracts which are widely used in the Real Estate business in California. They publish an Independent Contractor Agreement, which is commonly used by brokers when employing salespeople. In this case, a salesperson sued Century 21 and its broker, claiming damages arising from alleged gender discrimination and sexual harassment. Century 21 filed a petition for arbitration of the dispute, citing the binding arbitration clause in the Independent Contractor Agreement, which was signed by both parties. However, the court held that the binding arbitration clause was procedurally and substantively unconscionable, leading to the inevitable conclusion it is unenforceable. In June, 2011, CAR published a

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new version of this form which deleted the binding arbitration clause.

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Trial Court Must Award Attorney’s Fees If One Party Clearly Prevails

The appellate court in Orange County recently ruled [CUESTA v. BENHAM, G043788 (Cal.App. 3-29-2011)] that a landlord was entitled to recover its attorney’s fees against a tenant, where the landlord prevailed in an action for rent, but did not recover the full amount he was suing for. “If the results in a case are lopsided in terms of one party obtaining “greater relief” than the other in comparative terms, it may be an abuse of discretion for the trial court not to recognize that the party obtaining the “greater” relief was indeed the prevailing party. (Silver Creek, LLC v. BlackRock Realty Advisors, Inc. (2009) 173 Cal.App.4th 1533, 1541 (Silver Creek) [“Although a trial court has broad discretion to determine the prevailing party in a mixed result case, its discretion is not unlimited.”]; Hilltop Investment Associates v. Leon (1994) 28 Cal.App.4th 462, 468 (Hilltop) [“Appellant’s final argument is that the trial court’s discretion under Civil Code section 1717 is not unlimited, a proposition with which we agree.”].)”