A Class Action Lawsuit has been filed against Wells Fargo due to reductions in HELOCs all over the country.

In May of 2009, I wrote about Towson Zillow Zestimates affecting a client’s HELOC loan, and how his line of credit had been reduced right in the middle of construction on the property. This is what happened three years ago:

Last week I had a client call me because his HELOC was reduced by a large amount right in the middle of construction to improve his home. He could not understand how the bank could make the determination that his Towson house value had dropped over $200,000 in the past 18 months since he opened his HELOC.

Upon speaking to the bank, the representative pulls up Zillow, and proceeds to tell him this is how they discovered the value change.

“Is this true? Has my value really dropped by THIS much? I knew we were in a depressed market, but did not think it was THIS bad,” he asked me.

Based on a true market analysis, his value has really only dropped by $25-50,000.

Well, it turns out my client was not alone in what happened. In looking at the Wells Fargo HELOC Class Action Lawsuit document he shared with me, it appears there were a large number of people affected by this seemingly arbitrary reduction in loan amount.

If you had a HELOC loan with Wells Fargo in the time period from July 1, 2008-June 30, 2011 and had it reduced, you may be eligible to be a part of the lawsuit.

To become a part of the settlement, you will want to visit helocsettlement.com to learn more. If you want to opt out of the settlement, you will need to notify in writing through a Request for Exclusion by April 5, 2012. All details should be at helocsettlement.com. The attorneys handling the lawsuit are with Edelson McGuire LLC, 350 North LaSalle, Suite 1300, Chicago, IL, 60654. You may want to contact an attorney if you would like to know your specific rights.

Wells Fargo is not admitting any wrongdoing, but have agreed to settle in order to avoid going to court over the lawsuit.

I am glad for my clients, as they may have at least part of their HELOC reinstated. Let’s hope also that other banks learn from this and will not use Zillow Zestimates or other automated valuation systems to determine value on a home, without the option of a full appraisal.