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Mortgage Company Has Right to Reconsider Waiving Arbitration After New Complaint - Krinsk v. Suntrust Bank, Inc.

September 16, 2011

Our Rubidoux foreclosure defense attorneys were very interested to read about a ruling in a case involving arbitration as an alternative to litigation. Companies of all types will sometimes require consumers to sign arbitration agreements making it mandatory or optional to take disputes to private arbitration instead of public court. This is thought to be faster and cheaper, but critics say arbitration companies not-so-mysteriously tend to rule in favor of the companies that send them all that business. In Krinsk v. Suntrust Bank, a case involving home equity lines of credit, the Eleventh U.S. Circuit Court of Appeals ruled that even a valid arbitration agreement may not be enforced if one party sits on its rights for too long.

Sara Krinsk took out a $500,000 HELOC on her Florida home in 2006. The loan contract included a provision requiring binding arbitration of disputes if either party requests it and provides written notice, including within lawsuit papers. In October of 2008, Suntrust revoked her right to access $400,000 of the HELOC. It cited recently reported changes in her financial situation, but Krinsk alleges that Suntrust cut off lines of credit to Florida homeowners to shore up depleted capital and reduce the high risk of HELOCs. Krinsk, who is now 92, argues that this disproportionately victimized elderly customers. She filed a proposed class-action complaint with claims under TILA, Florida's elder abuse law and several common-law causes of action. Suntrust moved to dismiss, but did not mention arbitration. Litigation proceeded and the motion was even granted in part before Suntrust moved to compel arbitration, nine months into the case. The district court ultimately agreed with Krinsk that the bank had waived its right to arbitration by waiting so long. Suntrust appealed.

SunTrust argued to the Eleventh Circuit that an amended complaint Krinsk filed rejuvenated its right to compel arbitration, an issue of first impression. After considering other circuits' rulings, the Eleventh agreed. An amended complaint does not necessarily revive all defenses waived after the first complaint. But when the new complaint changes the scope or theory behind the case, it would be unfair to give the defendant no opportunity to respond to those changes. The same is true when the waiver is for compelling arbitration. In this case, the court said, the amended complaint changes the size of the proposed class significantly. Not only did it expand the age range of the potential class members -- from over 65 only to people of all ages -- but it increased the date range of the alleged injury and the basis for their HELOC suspensions. Though the allegations in the case did not change, the expanded class changed the "shape" of the litigation so much that SunTrust should be permitted to reconsider its waiver of arbitration rights. Thus, the Eleventh vacated the district court's order and remanded the case.

As Fountain Valley foreclosure defense lawyers, we wish Krinsk luck in arbitration of her claim. If her claims are valid -- and mortgage lenders certainly started tightening their belts in 2008 -- this is an issue of genuine consumer protection. Home equity lines of credit were handed out throughout the housing bubble, when home equity seemed like a safe bet. Borrowers used the money for anything from renovating the home to supporting a small business or paying off credit cards. Now that the housing market has crashed, many of those borrowers find themselves underwater, and some headed for foreclosure. Thanks to our position in boom-and-bust southern California, our Long Beach foreclosure defense attorneys have handled many HELOC foreclosure cases.

If you're facing foreclosure for any reason, or expect to be soon, Howard Law, P.C., may be able to help. For a free, confidential case evaluation, send us an email or call toll-free at 1-800-872-5925.

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