Was your Citibank home equity line of credit cut or closed during the financial crisis? If so, it's payback time
Whole neighborhoods lost their home equity lines back in 2008 when lenders panicked over falling home prices and started freezing or canceling HELOCs based on computer estimates of what homes were worth.
If it happened to you and Citibank was the one who did you wrong, you might be eligible to get $120 from a recently settled class-action lawsuit.
It’s not much compensation for a homeowner who, without advance notice, lost access to a home equity line of credit he was using to fund home renovations or pay the next semester’s college tuition.
But it’s not nothing, either.
And considering most of us don’t have the time, energy or money to fund our own lawsuits against Citibank, that's saying something, argues Stuart Rossman, director of litigation for the National Consumer Law Center in Boston.
The settlement covers an estimated 100,000 homeowners whose equity lines were either reduced to whatever they had already spent or were suspended because their homes were no longer worth enough to secure their HELOCs.
Some of those homeowners responded by paying off their HELOCS — only to have Citibank hit them with an early closure fee. Others argued that their homes hadn't fallen significantly in value.
Citibank told the latter group that if they want to reinstate their HELOCS, they'd have to pay a human appraiser to prove their home values hadn't plummeted, court documents show.
The take-home lesson from this case and similar cases filed against other large banks is that if you plan to use a home equity line to finance something like a home remodeling project, you’d best take the whole amount up front, rather than taking out funds as you need them.
Otherwise, you could end up with a new kitchen floor and new cabinets, but no money in your home equity line to pay for the countertops or your contractor’s final bills.
The class action isn’t going to prevent lenders from cutting off your credit line because a computer system says your home value has fallen. Instead, the lenders will just find a new way to continue doing what they want to do — use less expensive, less accurate appraisal methods to value your home.
"Going after one bank and getting them to change their process doesn't mean other parties will do so," Rossman says. "You'd hope that when they see the writing on the wall, they'd change. But many say, 'I'll keep going until I'm caught.' "
Automated appraisals probably won't be an issue if you live in a cookie-cutter home development with lots of recent sales. But if you live in a unique property, or there haven’t been many sales in your neighborhood lately, you’re more likely to get an unreliable home appraisal from an automated system.
Even if you pay several hundred dollars to get a human appraisal for your home to open your HELOC, chances are the lender will use an automated system at some point to reevaluate your home equity and potentially cut off your line.
Here are three bad things that can happen to you if your HELOC is reduced:
- If you go somewhere else to open a new HELOC and use the proceeds to pay off your old HELOC, your lender might charge you an early termination fee of several hundred dollars. That’s what Citibank did to one of the plaintiffs. You'll also have to pay closing costs again.
- Your credit score could fall because one of the data points used by credit-scoring firms measures how much of the credit you’re offered you actually use. When the amount available to you via HELOC drops to what you currently owe, that measurement works against you. You’ve used 100% of what you were offered.
- You could bounce HELOC checks. Citibank sent one of the plaintiffs a notice saying his HELOC was reduced, but the notice arrived the day after his account was frozen.
And let’s recall the biggest way we all got screwed: As taxpayers, we gave Citibank $45 billion in capital and $306 billion in mortgage securities guarantees so it could continue to make mortgage money available.
If Citibank froze or suspended your HELOC between Jan. 1, 2008, and Jan. 31, 2012, you should get information in the mail about how to make your claim.