Homeowner can't get in or out of frozen home equity line of credit

Q: I opened a home equity line of credit (HELOC) last June, which cost me $2,000 in fees. I made all my payments on time and have a zero balance.

Recently I tried to use the line to get more cash. However, my lender told me it was frozen, so I can't. The lender also won't let me close it without paying a penalty. Is this legal? What can I do?

A: It's no doubt small consolation, but you're not alone. According to The New York Times, major lenders, including Washington Mutual, have been freezing HELOCs by the thousands.

This apparently is happening most often to homeowners in areas with significantly declining property values, like California and Florida. The common explanation: Lenders don't want to extend more money than a home is now worth.

Other owners are getting the freeze because their credit scores are falling, or so lenders are saying.

Finally, some homeowners report their HELOCs frozen even though they don't fit either of these categories. (A word to the wise: Verify that you have access to those funds before you commit to spending them.)

With the continued unraveling of credit markets after last summer's mortgage meltdown, lenders "are scrambling to do everything they can to preserve their capital," says Michael Kratzner, president of FeeDisclosure.com, a Web site aimed at helping borrowers understand and reduce home-loan fees.

It's not illegal for lenders to freeze HELOCs or decline to let borrowers exit them prematurely. Whether you can do anything about this situation depends on your loan documents, Kratzner says.

Generally lenders have the right to withdraw an equity line based on any one of roughly half-a-dozen factors commonly spelled out in the documents.

Among them are declining property values, failure to pay, fraud or misrepresentation in the loan documents.

Thus you should read your docs to see if your lender has a valid reason to freeze you out.

The documents also should explain under what conditions you can cancel your equity line, Kratzner says. They should also contain information about annual fees, should you have them.

"Charging a cancellation fee for a frozen line showing a $0 balance isn't illegal, but it's wrong," Kratzner says, as is charging an annual fee for a line you're not allowed to use.

Finally, your lender should send you a letter telling you why your HELOC is frozen and when it will thaw.

If you haven't received this, or if you think the lender has shut down your credit line outside the boundaries of your loan agreement, write the lender and demand a review.

In some cases, and yours may be one, your HELOC was sold by the original lender to another. The new one may require additional documentation to prove you still meet the original loan conditions.

Deborah Bortner, director of consumer services for the Washington State Department of Financial Institutions, says homeowners having problems with equity lines can call her office for assistance.

The number is 360-902-8700. In some instances, the department may investigate.

Q: A buyer's agent claims to represent the buyer, but she is paid by the seller. Who does the "buyer's agent" really represent?

A: Until roughly a decade ago, the state's real-estate agents worked on behalf of sellers, even those who represented buyers. The Legislature changed that by passing the Law of Real Estate Agency.

It spells out agents' duties as well as who works for whom, under what conditions and how long agent-client relationships last.

The law requires an agent who represents the buyer to represent only the buyer no matter where the commission comes from.

As the law states, an agent must "be loyal to the buyer by taking no action that is adverse or detrimental to the buyer's interest in a transaction."

That means the buyer's agent can't disclose to the seller confidential information from or about the buyer. The agent can't say, for example: "Mary can afford your price, so you don't have to take less."

An agent who represents the seller, likewise, is working only for the seller.

The only exception occurs in those fairly rare circumstances when an agent represents both seller and buyer. That can happen when an agent takes a listing for a home and has a client who wants to buy it.

In that situation, the agent must have written consent from both parties to act as what's called a "dual agent."

Even then, the agent cannot do anything that's detrimental to either party's interest, including disclosing confidential information about one party to the other. The law says so.

Q: It appears there's a potential conflict between landlords' no-pet policies and the laws surrounding service animals. What's the story?

A: Seattle attorney Evan Loeffler says there is no conflict. Yes, landlords legally can have no-pet policies. However, federal law, specifically the Americans With Disabilities Act (ADA), trumps that, Loeffler says.

"The ADA clearly states that whether you're an employer, a landlord or a shop owner, you have to make a reasonable accommodation for persons who are disabled," he says. "If a person comes to you and says 'I'm blind and have a seeing-eye dog,' allowing that dog is a reasonable accommodation."

Technically, the landlord isn't allowing a dog; the landlord is agreeing to an accommodation.

While seeing-eye dogs are the best-known service animals, other dogs, monkeys and even potbellied pigs have been taught to help people cope with everything from hearing loss to seizures to anxiety attacks.

That makes it more challenging for landlords to discern the true service animals from pets whose owners are trying to skirt a no-pets policy.

Loeffler says landlords are within their rights to ask prospective tenants the nature of their disability and request permission to contact their health-care provider for verification.

"If they say no, I'd say I can't evaluate your request for a reasonable accommodation."

But one thing landlords can't do is require a pet deposit for service animals. That's illegal.

Home Forum answers readers' real-estate questions. Send questions to Home Forum, The Seattle Times, P.O. Box 1845, Seattle, WA 98111, or call 206-464-8510 to leave a question on a recorded line. The e-mail address is erhodes@seattletimes.com. Sorry, no personal replies. More columns at www.seattletimes.com/columnists.