Judge William Alsup of Northern District Rejects Preemption Argument in Federal Flood Insurance for Home-Equity Line Class Action

by charlesjung

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In Hofstetter v. Chase Home Finance, LLC, No. C 10-01313 WHA, 2010 WL 3259773 (N.D. Cal. Aug. 16, 2010) (slip. op.), a putative class action involving federal flood insurance requirements for home-equity lines of credit, defendants JP Morgan Chase Bank, N.A. and Chase Home Finance, LLC moved to dismiss all federal and state claims alleged.

Defendants argued that they were required under the National Flood Insurance Act of 1968 (“NFIA”) to purchase $175,000 worth of flood insurance in connection with plaintiff Sheila Hofstetter’s home-equity line of credit, resulting in plaintiff being billed $1,575 in insurance premiums.

At the time defendants “purchased” this flood insurance for plaintiff’s home, however, the outstanding balance on her line of credit was zero dollars and her entire $175,000 credit limit had been suspended by the bank due to the supposed decline in the value of her home.

Defendants–who originated and serviced plaintiff’s home-equity line of credit–argued that the NFIA and compliance guidelines required them to purchase $175,000 worth of flood insurance for plaintiff’s home and bill the premiums to her, thereby preempting plaintiff’s two California state claims.

Judge William Alsup rejected defendants’ preemption argument, concluding that the defendants were not required under the NFIA and compliance guidelines to purchase $175,000 worth of flood insurance when plaintiff’s entire home-equity line of credit had been suspended and there was no outstanding principal balance on the loan.