The opinion of the court was delivered by: Justice Greiman
Appeal from the Circuit Court of Cook County
Honorable Robert Boharic Judge Presiding.
This is a case of first and last impression for Illinois, the Illinois General Assembly having recently addressed the issue about which plaintiffs complain. Unfortunately for plaintiffs, the new statute is prospective in its application.
Plaintiffs Maria and Joaquin Perez filed a class action complaint against defendants Citicorp Mortgage, Inc., and Citibank, F.S.B. (collectively referred to as Citicorp), and John Does 1 through 10, representing the unnamed corporate officers of Citicorp. Plaintiffs based their complaint on the allegation that Citicorp, as a mortgage lender, improperly failed to disclose to plaintiffs, as mortgage borrowers, the circumstances under which borrowers could terminate their payment of private mortgage insurance (PMI). PMI protects the mortgage lender in the event the mortgage borrower defaults.
Upon Citicorp's section 2-615 motions (735 ILCS 5/2-615 (West 1996)), the trial court dismissed plaintiffs' three counts, as alleged in both their original and amended complaints, for failure to state a cause of action. We affirm the order dismissing all three counts of plaintiffs' complaints.
The three issues raised on appeal are whether a mortgage lender's failure to disclose to mortgage borrowers the circumstances under which the payment of PMI premiums can be terminated (1) constitutes an unfair and deceptive practice under the Illinois Consumer Fraud and Deceptive Business Practices Act (Act) (815 ILCS 505/2 (West 1996)), (2) breaches the covenant of good faith and fair dealing, and (3) unjustly enriches the lenders.
Although no Illinois court has yet addressed these issues, the disclosure regarding cancellation of PMI, as urged by plaintiffs-mortgagors, is now required by law under the Mortgage Insurance Limitation and Notification Act (765 ILCS Ann. 930/1et seq. (Smith-Hurd Supp. 1998)). Section 15 of this new act is entitled "transaction disclosure" and specifically provides as follows:
"After July 1, 1998, if a person enters into atransaction to obtain a mortgage for his or her principalresidence and private mortgage insurance may be required inconnection with that transaction, the mortgagee shalldisclose in writing all of the following:
(1) Whether private mortgage insurance will be requiredto be obtained or maintained with respect to themortgage.
(2) The period during which the insurance shall berequired to be in effect.
(3) The conditions under which the mortgagor may cancelthe insurance.
(4) That the mortgagor will be notified not less thanannually of an address and telephone number that may beused to contact the mortgagee to determine whether ornot the insurance may be terminated and, if the insurance may be terminated, the conditions andprocedures for termination." 765 ILCS Ann. 930/15(Smith-Hurd Supp. 1998). This act only applies to mortgages obtained on or after July 1, 1998, i.e., the effective date of the new act (765 ILCS Ann. 930/5, 99 (Smith-Hurd Supp. 1998)), and, therefore, does not apply to the present appeal.
On November 27, 1984, plaintiffs entered into a 30-year adjustable rate mortgage in the amount of $27,900 with Citicorp to purchase their home. In the fall of 1986, plaintiffs requested that the mortgage be converted to a 15-year fixed rate mortgage and Citicorp executed the conversion in early 1987. For both mortgage loans, Citicorp required plaintiffs to purchase PMI because they had less than 20% equity in their home at the time of the transactions. The mortgage contract, however, required plaintiffs to pay for PMI "until the Note is paid in full."
By early 1983, plaintiffs' loan was less than 80% of the value of the property, although Citicorp continued to bill plaintiffs for PMI. In May 1996, plaintiffs requested cancellation of their PMI and Citicorp canceled the PMI policy in September 1996.
On March 14, 1997, plaintiffs filed their original complaint with three counts, alleging a violation of the Act (count I), a breach of the covenant of good faith and fair dealing (count II), and unjust enrichment (count III). Citicorp filed a section 2-615 motion to dismiss plaintiffs' complaint. Following a hearing on October 20, 1997, the trial court dismissed counts I and II but allowed plaintiffs leave to amend their complaint as to these two counts. The trial court dismissed the unjust enrichment count with prejudice.
On November 17, 1997, plaintiffs filed their amended complaint, again alleging violations of the Act (count I) and the covenant of good faith and fair dealing (count II). Also in their amended complaint, plaintiffs specifically incorporated by reference the unjust enrichment count from their original complaint and thereby preserved the right to appeal that count. Thereafter, the trial court granted Citicorp's section 2-615 motion to dismiss for failure to a state a cause of action.
In their amended complaint, plaintiffs stated that Citicorp required mortgagors to purchase PMI where their equity in the property constituted less than 20% of the loan-to-value (LTV) ratio. Plaintiffs alleged that Citicorp was aware that it would sell its residential loans to an investor and retain servicing rights. Investors require PMI coverage for all loans in which the borrower has less than 20% equity in the property and Citicorp's contracts with investors dictate the circumstances under which PMI coverage may be terminated. Once the borrower has at least 20% equity in the property, and certain other conditions are met, investors require servicers, such as Citicorp, to permit mortgagors to cancel their PMI coverage. Plaintiffs maintained that PMI covers only the top 20% of the loan value and, thus, no benefit obtains after the 80% LTV has been reached.
Plaintiffs' complaint further alleged that Citicorp was aware of these conditions for cancellation of PMI for as long as it had serviced mortgages on behalf of investors and did not inform mortgagors, unless they affirmatively requested such information, that it had assigned the borrower's loan or that investors would permit PMI cancellation. Plaintiffs stated that they did not realize that ...