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11/27/96 PHYLLIS J. WEATHERMAN v. GARY-WHEATON BANK

November 27, 1996

PHYLLIS J. WEATHERMAN, RUTH A. RUSSELL, AND ROLAND D. VEGA, PLAINTIFFS-APPELLEES AND CROSS-APPELLANTS,
v.
GARY-WHEATON BANK OF FOX VALLEY, N.A., NOW KNOWN AS THE FIRST NATIONAL BANK OF CHICAGO, N.A., AND FIRST CHICAGO CORPORATION, DEFENDANTS-APPELLANTS AND CROSS-APPELLEES.



Appeal from the Circuit Court of Cook County. 94 CH 00593. The Honorable Edwin Berman, Judge Presiding.

Rehearing Denied February 7, 1997. Released for Publication February 13, 1997.

The Honorable Justice Scariano delivered the opinion of the court: Burke, J., concurs. DiVITO, J., specially concurs in part and dissents in part.

The opinion of the court was delivered by: Scariano

JUSTICE SCARIANO delivered the opinion of the court:

In this appeal, we must determine whether, under the circumstances present in this case, the defendants' assessment of fees against plaintiffs for recording the assignment of a mortgage and for the suspension of an escrow violated the Illinois Consumer Fraud and Deceptive Practices Act. For the reasons that follow, we conclude that the assessment for recording the assignment of the mortgage violated that Act, while the charging of a fee for suspending the escrow payments was not a violation thereof.

Plaintiffs Phyllis J. Weatherman, Ruth A. Russell, and Roland D. Vega obtained a residential mortgage from Gary-Wheaton Bank of Fox Valley (Gary-Wheaton). After plaintiffs applied for their loan, the First National Bank of Chicago (First National), which is a subsidiary of First Chicago Corporation (First Chicago), acquired Gary-Wheaton. Plaintiffs filed a class-action complaint against First National and First Chicago, in which they alleged that these defendants had violated the Illinois Consumer Fraud and Deceptive Practices Act (Consumer Fraud Act; sometimes, Act) (815 ILCS 505/1 et seq. (West 1992)) by charging them a mortgage assignment recording fee and an escrow suspension fee at closing.

Defendants filed a motion to dismiss pursuant to section 2-619.1 of the Illinois Code of Civil Procedure (735 ILCS 5/2-619.1 (West 1992)). The circuit court dismissed First Chicago from the case and it also dismissed that portion of the complaint concerning the escrow suspension fee, but it denied the motion with respect to the claim relating to the mortgage assignment recording fee. First National then filed a motion under section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 1992)) to dismiss the mortgage assignment recording fee claim. The court also denied this motion.

At First National's request, the circuit court then certified to this court the following question under Supreme Court Rule 308 (134 Ill. 2d R. 308):

"A. Whether a lender violates the Illinois Consumer Fraud and Deceptive Practices Act by giving an applicant for a loan, at the time a loan is applied for, a gross estimate of the recording fees to be paid at closing and not telling the loan applicant until closing that one of the fees included in the gross estimate was a fee to cover the cost of recording the assignment of the mortgage securing the loan.

B. In this case, the assignee of the assignment is a wholly-owned affiliate of the defendant."

The circuit court also found, under Supreme Court Rule 304(a) (134 Ill. 2d R. 304(a)), that there was no just reason to delay the appeal of its decision on the escrow suspension fee. It stayed further proceedings pending this court's decision on the certified question. We granted the appeal on the certified question and consolidated it with the plaintiffs' appeal under Rule 304(a).

In the appeal under Rule 308, First National argues that a mortgage assignment recording fee is proper under the circumstances stated in the certified question because (1) the Real Estate Settlement Procedures Act (27 U.S.C.A. § 2601 et seq. (West 1989)) provides a defense to a lender's liability under the Consumer Fraud Act; (2) it is not an unfair or deceptive practice under the Consumer Fraud Act for a lender to charge a borrower a mortgage assignment recording fee; (3) section 1735f-7a(1) of the Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C.A. § 1735f-7a(1) (West 1989)) preempts the Consumer Fraud Act; and (4) the Illinois Interest Act (815 ILCS 205/1 et seq. (West 1992)) rather than the Consumer Fraud Act governs a lender's right to charge a borrower a mortgage assignment recording fee. In their appeal under Rule 304(a), plaintiffs argue that the circuit court erred in dismissing their claim relating to the escrow suspension fee because this fee violated the Consumer Fraud Act and because the court erroneously concluded that waiver and voluntary payment barred their action.

In their class-action complaint against First National and First Chicago, plaintiffs alleged that they applied to Gary-Wheaton for a mortgage to refinance their residential property. Plaintiffs signed a loan commitment and gave Gary-Wheaton approximately $1,400 as a "lock-in fee," which was refundable if they closed on the loan. At some time prior to closing, Gary-Wheaton chose to assign plaintiffs' mortgage to Midwest Mortgages, Inc. (Midwest). Gary-Wheaton did not inform plaintiffs until closing that they would be required to pay a $15 fee for recording the assignment to Midwest. Midwest was an affiliate of First Chicago at the time Gary-Wheaton made the loan to plaintiffs.

Plaintiffs further alleged that Gary-Wheaton advised them that it would temporarily "suspend the escrow." "At a later date and after the loan had been approved, approximately three or four days before the January 12, 1993 closing," Gary-Wheaton demanded that plaintiffs pay a fee of $343.13 to "control their own escrow." Plaintiffs alleged that Gary-Wheaton told them that it would not complete the loan transaction if plaintiffs did not pay this fee. At closing, plaintiffs sent a letter to Gary-Wheaton, in which they disputed the escrow suspension fee and the mortgage assignment recording fee. They paid these fees, however, to avoid losing their lock-in fee.

Plaintiffs maintain that they received no benefit from the escrow suspension fee or the mortgage assignment recording fee. In addition, they alleged that if they had known before paying their lock-in fee that Gary-Wheaton would charge them these two fees, they "would have pursued refinancing with other lenders who did not require payment of these fees"; that Gary-Wheaton intended plaintiffs to rely on its omissions and misrepresentations, and that plaintiffs did rely on its omissions and misrepresentations.

Based on these allegations, plaintiffs claimed that First National and First Chicago had engaged in unauthorized and deceptive lending practices. They asserted that it was a violation of the Consumer Fraud Act to charge the mortgage assignment recording fee because the assignment was separate from the loan transaction. They asserted that it was a violation of the Act to charge the escrow suspension fee because Gary-Wheaton had waived its right to require an escrow. They also asserted that the timing of the disclosure of the fees violated the Act, and that Gary-Wheaton misrepresented that the fees were required charges and were necessary for it to close and fund the loan.

Plaintiffs attached several documents to their complaint. One of these was the "Good Faith Estimate of Charges" that Gary-Wheaton provided them at the time they applied for the loan. This good faith estimate consisted of a pre-printed list of fees with boxes next to the listed items, in which an estimated amount could be written. In the box on the line for "recording fees," the amount $80 was written. In spaces provided for "others," there was an estimate of $180 for nine months of insurance escrow and $333 for eight months of tax escrow, although at some point, someone drew a line through the tax escrow estimate and initialled the change. At the bottom of the form, there was a printed disclaimer. Because of the poor quality of the copy in the record, only the words "you may be required to pay other additional amounts at settlement" are legible. The form was dated October 31, 1992, and signed by all three plaintiffs.

Plaintiffs also attached a document entitled "Initial Escrow Account Statement required by Section 10(c)(1) of the Real Estate Settlement Procedure Act (RESPA)." This document listed plaintiffs' names and stated that the terms of their loan required them to have an escrow account for taxes and insurance. Typed on the printed form, however, are the words "temporary suspension of escrows has been approved." The form is undated.

Another attachment was a copy of a loan disbursement statement, which showed a "temporary suspension of escrow fee" of .25% of the loan amount, or $343.13. Plaintiffs signed this statement, which is also undated.

A fourth document plaintiffs attached was a HUD-1 form, which listed plaintiffs' settlement costs at closing. This form, dated January 12, 1993, the date of closing, listed the $343.13 fee as a "temporary suspension of escrows." Recording fees were listed in pre-printed categories as follows: $30 for the deed, $17 for the mortgage, and $15 for releases. On a blank line below these recording fees the words, "assignment of mortgage," were typed next to the amount of $15. The last attachment to the complaint was the letter, dated January 12, 1993, in which plaintiffs disputed the fees.

Defendants filed a motion to dismiss "pursuant to 735 ILCS 5/2-619.1, for failure to state a claim upon which relief may be granted." To their motion to dismiss, they attached a copy of the Illinois Mortgage Escrow Account Act (765 ILCS 910/1 et seq. (West 1992)) (Escrow Act) that plaintiffs had signed on January 12, 1993.

In March 1994, the circuit court dismissed First Chicago without prejudice, and, thereafter, First National filed a memorandum to support its motion to dismiss. Among the attachments to the memorandum was a document, entitled "Important Information for Borrowers," which informed borrowers that their loan would "be sold and transferred at or after closing." Plaintiffs signed this document on October 31, 1992.

First National attached plaintiffs' responses to requests to admit to its reply to plaintiffs' response to its motion to dismiss. In these responses, plaintiffs admitted that they had asked Gary-Wheaton to suspend the escrow requirement after they applied for the loan and after they had paid the lock-in fee. They also admitted that Gary-Wheaton had refunded their $275 mortgage application fee, but they asserted that this was because of errors in the closing documents.

On September 1, 1994, the circuit court denied the motion to dismiss with respect to the mortgage assignment recording fee but granted it with respect to the escrow suspension fee. The court granted the motion with respect to the escrow suspension fee because it concluded that plaintiffs had received advance notice of the charge and had agreed to it in advance. The court did not specify under which Code section it decided First National's motion.

One month after the court denied its motion to dismiss with respect to the $15 mortgage assignment recording fee, First National filed another motion to dismiss plaintiffs' claim with respect to this fee. First National specified that this second motion to dismiss was pursuant to section 2-619.

In connection with its second motion to dismiss, First National filed the affidavit of Leonard Giblin, president of Midwest. In his affidavit, Giblin asserted that Midwest bought "mortgages from lenders and [sold] them in the secondary mortgage market, predominantly to such quasi-governmental agencies as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Home Mortgage Corporation (Freddie Mac)." Due to the volume of mortgages it sold in the secondary market, Midwest was able to get "better prices from Fannie Mae and Freddie Mac for its mortgages than smaller-volume mortgage sellers.

Giblin's affidavit also states that as a result of an agreement under which Midwest promised to purchase mortgage loans from Gary-Wheaton, the bank was able to offer home mortgage loans with an annual percentage rate .05% lower than it would otherwise have been able to offer. Giblin went on to state that "The $15 mortgage assignment fee charged to mortgagors to assign their mortgages from Gary-Wheaton to [Midwest] is paid directly to the title company which closes the mortgage loan and not to Midwest or Gary-Wheaton."

Plaintiffs attached Giblin's deposition to their surreply. He testified therein that a bank that sells a mortgage to Midwest bears the cost of the "mortgage assignment recording fee, which the bank may collect at closing even though it assigns the mortgage after closing. And then how they pay for it is not part of your deal with them," acknowledging that the lender instructs the closing agent to "charge the borrower or charge us or charge whoever will pay it, because those instruction do come from the lender." Giblin further deposed that Midwest prepared the bank's preliminary truth in lending statement "where we estimated the recording costs large enough to include the assignment." Midwest acted as a broker, did not have assets to invest in mortgages, and always bought mortgages for an investor.

On July 13, 1995, the circuit court denied First National's second motion to dismiss, and it refused plaintiffs' request to decide the issue of class certification at that time. As previously stated, the circuit court then certified a question under Rule 308 concerning the mortgage assignment recording fee and found, pursuant to Rule 304(a), that there was no just reason to delay an appeal involving its dismissal of plaintiffs' claim concerning the escrow suspension fee.

As a preliminary matter, we deny plaintiffs' request that we strike portions of First National's brief because First National's arguments go beyond the certified question. Although it is true that an appellate court should not expand on a certified question to answer questions that could have been included but were not ( McCarthy v. La Salle National Bank and Trust Co., 230 Ill. App. 3d 628, 631, 595 N.E.2d 149, 172 Ill. Dec. 86 (1992)), it may answer questions that are necessarily a part of the certified question (see Gordon v. Boden, 224 Ill. App. 3d 195, 198-99, 586 N.E.2d 461, 166 Ill. Dec. 503 (1991)). We find that First National's arguments ...


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