Todd Appleman never envisioned washing his dishes in the bathtub when he opened a $64,000 home-equity line of credit to renovate his kitchen.

But just when he was about to advance a first payment to his contractors -- who had just ripped out his cabinets and appliances -- Appleman says his lender, Bank of America ( BAC), froze the line without notice to him.

"People don't take out a line of equity with the intention of not ever using it. And wouldn't it be courteous to give your customer a call to tell me about this?" he says.

The nation's plummeting real-estate market has prompted many lenders, including Countrywide ( CFC), Washington Mutual ( WM) and Bank of America, to cancel or reduce many borrowers' home-equity lines of credit. The action is typically permitted by loan agreements, but it's one that's surprising many homeowners.

"Most customers don't realize under what terms and conditions the lender can close the account," says Chris Roberts, president of First Palmetto Mortgage in Greenville, S.C. "They are deep and wide -- and they don't come into play during an appreciating market when values are rising."

Manda Hunt of Atlanta says an exemplary payment and credit history didn't influence her lender's decision. Hunt opened a home-equity line when she purchased a one-bedroom condominium in Atlanta for $173,000 in 2002. She says she paid her mortgage via automatic checking account deductions and made extra principal payments. A recent letter she received from Countrywide described her as a "great customer" but explained that she could no longer draw from her home-equity line due to declining real estate values, she says.

"I was freaking out," says Hunt, who describes herself as being "anal" about paying bills on time and maintaining a high credit score. "I wasn't planning on accessing the line but I don't want to hear that I can't." Countrywide now values Hunt's condominium in the mid-$150,000 range -- nearly $20,000 under her purchase price, she says.

A Countrywide spokeswoman says the lender is reviewing its portfolio's home-equity lines of credit "in keeping with its sound risk-management and responsible-lending practices," and that lower property values may lead to the suspension of existing accounts.

But Appleman, the homeowner who temporarily suspended his kitchen renovation, says property values in the Hollywood Hills section of Los Angeles, where he resides, have remained steady, and in some cases, increased, during the slump. He also says he's been a long-term customer with the bank and has excellent credit.

"I've always paid my mortgage on time. It's a very bad case that shouldn't happen to anyone who deals with a solid financial institution," Appleman says.

Terry Francisco, a spokesman for Bank of America, wouldn't discuss the bank's appraisal process, citing it as "proprietary." But he says customers who think the appraisal is erroneous may discuss their concerns with the bank. Bank of America is presently examining equity lines in areas of the country where home values have declined significantly, he says. It is also reducing lines of credit for borrowers whose home values haven't declined significantly, but who haven't accessed the line, he says.

"It's further proof of the absolute, complete absurdity of our current mortgage market," says Ira Rheingold, executive director of the National Association of Consumer Advocates, a Washington, D.C.-based advocacy network dedicated to protecting consumers from unfair and deceptive business practices. "When it comes to helping consumers in foreclosure, they say they can't use an across-the-board fix, yet this is what they do with HELOCs."

Neither Countrywide nor Bank of America would disclose the total number of home-equity loans that have been frozen or reduced.

Homeowners who are depending on the money for serious financial commitments such as renovations, college tuitions or medical expenses, may have to consider alternative sources to meet short-term cash-flow needs, says Shanda Jeffries, director of corporate services for ASE Wealth Advisors in Greenville, S.C.

Those options, however, may not be as favorable as a home-equity line of credit. For example, borrowers may need to tap into their 401(k) plans in a worst-case scenario, she says. But if you don't pay it back, a 10% early withdrawal penalty applies to the loan balance, plus state and federal income taxes for that year. "You really have to talk to a financial adviser if you're having a serious cash-flow problem," she says.

Appleman, who has been cooking in a microwave and storing perishables in a mini refrigerator, says he was ultimately able to arrange a $60,000 unsecured loan through Bank of America -- after explaining his problem to at least five different bank representatives. But the interest rate soared from 5.9% for the equity line to 8.9% for the unsecured loan -- and the interest on the latter isn't tax deductible. "It gets me out of the problem for now," he says.

Don't expect banks to automatically reverse course if real-estate values ultimately notch upward. Bank of America, at least, has no intention of automatically reinstating borrowers' previous credit lines if appraisal values increase, says Francisco. It's the buyer's responsibility to contact the bank, he says.
Suzanne Barlyn is a writer in Washington Crossing, Pa.