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Lathrop v. Bell Federal Savings & Loan

OPINION FILED JULY 29, 1976.

ERNEST LATHROP ET AL., PLAINTIFFS-APPELLANTS,

v.

BELL FEDERAL SAVINGS AND LOAN ASSOCIATION, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. F. EMMETT MORRISSEY, Judge, presiding.

MR. JUSTICE MCGLOON DELIVERED THE OPINION OF THE COURT:

In this case, we are asked to consider the question of whether individuals representing a class of mortgagors are entitled to maintain an action against their mortgagee for interest earned by the mortgagee on the mortgagors' advance payments to the mortgagee for taxes, assessments, and insurance. Plaintiffs-mortgagors, Ernest and Mary LaThrop, filed suit in the circuit court of Cook County against their mortgagee, Bell Federal Savings and Loan Association, asking for an accounting of such wrongfully appropriated earnings. The trial court granted defendant's motion to dismiss, and this appeal was taken by plaintiffs.

We affirm.

The pertinent facts are as follows. On May 2, 1969, plaintiffs secured a mortgage loan from Bell. The mortgage was in a form prescribed by the Federal Housing Authority, which guaranteed the loan. By the terms of the mortgage, plaintiffs promised:

"That, together with, and in addition to, the monthly payment of principal and interest payable under the terms of the note secured hereby, the Mortgagor will pay to the Mortgagee, on the first day of each month until the said note is fully paid, the following sums:

(a) An amount sufficient to provide the holder hereof with funds to pay the next mortgage insurance premium if this instrument and the note secured hereby are insured, or a monthly charge (in lieu of a mortgage insurance premium) if they are held by the Secretary of Housing and Urban Development, as follows:

(I) If and so long as said note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the holder one (1) month prior to its due date the annual mortgage insurance premium, in order to provide such holder with funds to pay such premium to the Secretary of Housing and Urban Development pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or

(II) If and so long as said note of even date and this instrument are held by the Secretary of Housing and Urban Development, a monthly charge (in lieu of a mortgage insurance premium) which shall be in an amount equal to one-twelfth (1/12) or one-half (1/2) per centum of the average outstanding balance due on the note computed without taking into account delinquencies or prepayment;

(b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other hazard insurance covering the mortgaged property, plus taxes and assessment next due on the mortgaged property (as estimated by the Mortgagee) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, taxes and assessments will become delinquent, such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes and special assessments; and

(c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the note secured hereby shall be added together and the aggregate amount thereof shall be paid by the Mortgagor each month in a single payment to be applied by the Mortgagee to the following items in the order set forth;

(I) Premium charges under the contract of insurance with the Secretary of Housing and Urban Development, or monthly charge (in lieu of mortgage insurance premium), as the case may be;

(II) Ground rents, if any, taxes, special assessments, fire and other hazard insurance premiums;

(III) Interest on the note secured hereby; and

(IV) Amortization of the principal of the said note."

We are concerned with section (b), which provides that plaintiffs-mortgagors will make monthly advance payments for ground rents, hazard insurance premiums, taxes and assessments to Bell, "such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes and special assessments * * *."

Plaintiffs contend that the language in section (b) created a trust, and that Bell violated its trust duties by commingling the trust funds with its general funds, using the funds in its operations, earning money through the use of the trust funds, and appropriating the earnings for itself. In the alternative, plaintiffs contend that Bell should be declared a constructive trustee of the funds for the benefit of plaintiffs and the class they represent. Defendant admits that it ...


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