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Krause v. GE Capital Mortgage Service

May 30, 2000


The opinion of the court was delivered by: Presiding Justice O'mara Frossard

Appeal from the Circuit Court of Cook County Honorable Robert V. Boharic, Judge Presiding.

Plaintiffs, Steven and Patricia Krause and Phillip and Tammy Lindberg, brought this three-count complaint against defendant, GE Capital Mortgage Services, Inc., involving the prepayment of mortgage loans that defendant was in charge of servicing. Plaintiffs sought damages for breach of contract (count I), restitution (count II) and unfair and deceptive practices under the Illinois Consumer Fraud and Deceptive Business Practices Act 815 ILCS 505/1 et seq. (West 1998) (count III). Defendant moved for summary judgment on each count of the complaint and the trial court granted the motion. On appeal, plaintiffs argue that the trial court erred in granting summary judgment. We affirm.


Plaintiffs brought suit on behalf of themselves and those who were similarly situated. The plaintiffs alleged that they financed the purchases of their homes through home mortgage loans and signed promissory notes and mortgages. The mortgages and notes prohibited any prepayment charges and contained the following language with respect to a prepayment charge, "I may make a full prepayment or partial prepayment without paying any prepayment charges." The notes and mortgages also listed other possible loan charges, but did not list any charges that were prohibited and did not mention fees for obtaining account information on the amount the borrower owed on the loan. Eventually, defendant acquired plaintiffs' mortgages and assumed the responsibility for servicing each of the loans. As part of its responsibilities, defendant received borrowers' monthly payments, administered escrow amounts, and processed loan payments. Defendant also provided a written account or payoff statement that informed the borrower the amount owed on the mortgage loan account.

Plaintiffs alleged that they entered into contracts to sell their homes and, to complete the real estate transactions, sought to payoff their mortgage loans in total before maturity. In order to fulfill this obligation, plaintiffs were required to obtain written payoff statements from defendant. Additionally, because of time constraints, plaintiffs requested the statements be sent by facsimile. The payoff statements that the plaintiffs received listed not only the balance due on the mortgage loans but also included a $15 quote fee and a $10 fax fee. The payoff statements further required full payment of the balance due on the loan including the quote and fax fees. Plaintiffs alleged that they paid both the quote and fax fees to obtain the release of the mortgages because they did not want to breach the contract with the buyers of their homes.

Plaintiffs attached their mortgages, notes, and payoff statements to their complaint. Plaintiffs alleged that the notes and mortgages only authorized specific fees and not a quote or fax fee. Plaintiffs alleged that both documents prohibited any prepayment charges, which they contend the quote and fax fee constituted, and that neither the mortgages nor the notes specifically listed these charges as necessary for defendant to release the loan and security instrument. Count I of plaintiffs' complaint alleged that defendant breached its contract with plaintiffs by imposing the fax and quote fees. Plaintiffs further alleged that they satisfied all of the terms and conditions of the mortgage contracts and that defendant's conduct in adding the unauthorized fees to the payoff statements breached its covenant of good faith and fair dealing with plaintiffs. Count II sought damages for restitution because, according to the complaint, the unauthorized fees conferred an inequitable benefit on defendant. Count III alleged that defendant engaged in unfair and deceptive practices in violation of section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (Fraud Act) (815 ILCS 505/2 (West 1998)). The alleged unfair and deceptive practice was that defendant added "unauthorized and prohibited charges to their mortgage customers' final account balances when their customers prepared to pay off their mortgage loan, when such fees were prohibited by their customers' notes and mortgages."

Defendant moved for summary judgment on each count of the complaint, relying in part on the affidavit of Diane Graf, a vice- president in defendant's customer service department. Defendant argued that the fees at issue were not prepayment charges but rather were charges authorized for the services defendant performed. Graf stated in her affidavit that defendant often responds to inquiries from mortgagors requesting a payoff quotation of the balance due on the account. Besides mortgagors making these requests when they decide to pay off their mortgage loans before maturity, mortgagors request payoff statements for overall financial planning, to update financial statements, for divorce or bankruptcies, and for general informational purposes.

Graf next stated that defendant did not charge for providing payoff quotes verbally, over the phone, or by mail. However, defendant charged a $10 service fee for sending the statement by facsimile. In addition, defendant charged in total a $15 service or quote fee if more than one written payoff statement on an account was requested. The quote fee and fax fee are charged to the borrower's account at the time the services are rendered, but are not paid until the time the loan is paid off. Graf stated that fax and quote fees are not necessary for prepayment of a loan because a loan could be and has been paid off without the borrower ordering a payoff statement or where the borrower only ordered one written payoff statement by mail.

Moreover, Graf discussed defendant's procedure for full disclosure of the fax and quote fees before a borrower or other party orders a payoff statement that incurs such fees. Defendant requires its customer service agents to disclose a quote or fax fee to any party requesting a payoff statement and to explain about the possibility of additional quote fees in the future. Defendant also operated an automated telephone system from which a borrower or representative can access and order a payoff statement. When a party orders a payoff statement, the automated system discloses that a faxed statement on a loan, similar to the plaintiffs' statements, costs $10. In addition, each payoff statement, as evidenced by plaintiffs' payoff statements, states that "[t]here will be a $15.00 quote fee assessed for any additional quotes requested."

Graf additionally reviewed the computer and business records of plaintiffs' loans. On June 4, 1997, plaintiffs Steven and Patricia Krause or their attorney requested an initial payoff statement through the automated telephone system and requested that the statement be sent via facsimile. The statement included a $10 fax fee and informed the recipient that a quote fee would be imposed for a second payoff statement. On July 17, 1997, a second payoff statement was requested on the Krause loan and again was ordered through the automated telephone system. The statement included a second fax fee of $10. On July 29, 1997, the Krauses paid off their loan and paid all quote and fax fees, which consisted of the $15 quote fee for their request for a second payoff statement and total fee of $20 for the two faxed statements.

With respect to the Lindbergs' loan, on September 17, 1996, the Lindbergs ordered an initial payoff statement through the automated telephone system and requested that it be sent by facsimile to an Arizona telephone number. The statement included a $10 fax fee. Phillip Lindberg testified at his deposition that he requested this payoff statement because he was considering refinancing his loan although he later chose not to refinance. This deposition was attached to defendant's motion. On June 23, 1997, a second payoff statement was ordered on the Lindbergs' account through the telephone system, but this time the caller requested that the statement be mailed. The statement included the earlier $10 fax fee, no cost for mailing, and a $15 quote fee. Thereafter, in the next few months, the Lindbergs or a representative ordered three more payoff statements and requested that two of the statements be faxed. By November 11, 1997, when the Lindbergs paid off their loan, the Lindbergs or a representative had requested in total five payoff statements and had received by request three of the statements by facsimile. The Lindbergs paid the $15 quote fee imposed as a result of their request for multiple payoff statement and the $30 fax fee for the three faxed statements, when they paid off their loan.

Defendant also attached to its motion the deposition transcripts of Gary and Stephen Newland, the attorneys responsible for handling the sale of the Krause and Lindberg homes and the payoff of their loans. Both attorneys confirmed that they or members of their law firms had ordered payoff statements consistent with defendant's computer records. Gary Newland talked with Patricia Krause about the fax and quote fees on the payoff statement before the real estate closing and Krause questioned the fees. Prior to the Lindbergs' closing, Stephen Newland had similar discussions with Phillip Lindberg about the fax and quote fees, and Lindberg questioned the fees. Nevertheless, both the Krauses and Lindbergs paid the fees as part of their payoff of their mortgages in full.

In response to defendant's motion for summary judgment, plaintiffs did not contest that defendant disclosed the fax and quote fees prior to plaintiffs ordering the payoff statements at issue. Plaintiffs argued that there were general issues of material fact that the quote and fax fees were prepayment penalties, were not authorized by the mortgages or notes, and were unfair practices under the Fraud Act.

Following oral arguments, the trial court granted defendant's motion for summary judgment on each count. The court first concluded that the fax and quote fees did not constitute prepayment charges and did not breach the contracts between plaintiffs and the defendant. The court found that the fees are not solely charged when a mortgagor attempts to pay his loan in full before maturity, but could be incurred independent of a prepayment. The court also rejected plaintiffs' argument that these fees were not proper under the mortgages and notes. The court found that the fees were permissible service fees that arose from defendant's management of the mortgage. Regarding plaintiffs' claim of a violation of the Fraud Act, the court found that defendant disclosed the fees in advance, plaintiffs agreed to pay them, and defendant rendered a service for the fees. The court therefore failed to find any unfair or deceptive practices. The court also found that, under the voluntary payment doctrine, plaintiffs' payment ...

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