Citibank ignores a contract

The Internet is abuzz with the recent revelation that Citibank, Countrywide and other major mortgage and home equity lenders have arbitrarily frozen or reduced funds available in their home equity lines of credit.

Citibank, for one, claims that they have done this only after a review of each account and a determination that the current value of the property has dropped to the point where the account balance might not be justified. The reality seems to be quite the opposite.

It appears that Citibank and the other have simply frozen the accounts of all of their HELOC clients by ZIP code. If the subject property is in a ZIP code area that has had falling values over the past year, then the accounts within those ZIPs are either frozen, reduced or cancelled.

A friend of mine had nearly $40,000 available in her HELOC. She called Citibank one morning recently and confirmed that the money was available and was told by the customer service rep that, yes, she had the funds available, and that she could draw against them. She then wrote two checks totaling $10,000 (well under her available funds limit), went to her bank and deposited them in their ATM. Checks were accepted, funds verified as cleared and a few days later she began paying off some credit card accounts with those funds.

Nine days later she receives two letters, one for each check that she wrote, from Citibank. In both letters she was informed that her checks were returned to her bank as NSF (non sufficient funds) – and that her account had been frozen the very same day that she wrote the checks.

When she complained and asked how they could freeze her account like that, without any warning and after the fact (they actually froze the account six days after she had written the checks), the customer service rep simply said that it was a new procedure and that under a very hard to find item in her contract – the bank had the right to do whatever they wanted. However, upon his review of her account (she has a near perfect FICO score and the equity line was under 70% loan to value for her home), he admitted that she did not meet the state criteria for having her account frozen.

When asked what could be done, the poor guy was at a loss. “Have your bank redeposit the checks when they come back. Or, go down and get the checks from your bank and then write new ones,” he suggested. At this point, my friend’s bank had not even been notified that the checks had been returned unpaid.

The bottom line is that my friend had to quickly shuffle money from other interest bearing accounts to cover all the other checks she had written. At this point, she really does not know what she is going to do as she already had plans in place that would have required access to the rest of her HELOC funds.

There is more to this story – and it is a nightmare for HELOC clients of all these lender banks.