Chase Loses Bid to Scrap Class Action Over HELOCs
(CN) - A federal judge in San Francisco refused to dismiss a class action accusing Chase Manhattan Bank of suspending borrowers' home equity accounts based on its inaccurate and mysterious formula for assessing home values.
In April 2004, lead plaintiff Mary Yakas had a $71,750 credit limit under her HELOC, or home equity loan, with Chase. Her property was appraised at $718,000.
In December 2008, Chase suspended future draws on her account based on its assessment that her property value had shrunk to $674,000 and no longer supported her credit line. To determine Yakas' property value, Chase relied on its Automated Valuation Model, or AVM.
"How the AVM model worked is a mystery on the present record," U.S. District Judge William Alsup wrote.
Yakas filed a class action, alleging breach of contract and unjust enrichment. She said Chase breached the HELOC in three ways: by failing to obtain an appraisal by a licensed appraiser, by using the unreliable AVM to assess her property value and by charging her a $20 annual fee after it suspended her credit line.
Disputing each claim, Chase asked Judge Alsup to dismiss the case.
But the judge allowed the case to proceed, calling the bank's arguments "interesting" and "plausible," but ultimately not strong enough to warrant dismissal.
"Though defendant's arguments are plausible, they cannot carry the day at the pleading stage," Alsup wrote.