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Illinois Association of Mortgage Brokers v. Office of Banks and Real Estate

October 21, 2002

ILLINOIS ASSOCIATION OF MORTGAGE BROKERS, PLAINTIFF-APPELLANT,
v.
OFFICE OF BANKS AND REAL ESTATE AND WILLIAM A. DARR, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 01 C 5151--Charles R. Norgle, Sr., Judge.

Before Flaum, Chief Judge, and Easterbrook and Ripple, Circuit Judges.

The opinion of the court was delivered by: Easterbrook, Circuit Judge

ARGUED SEPTEMBER 17, 2002

The Alternative Mortgage Transaction Parity Act of 1982, 12 U.S.C. §§ 3801-06, provides that state-chartered lenders may make variable- interest home mortgage loans (called "alternative mortgage transactions") on the same terms as federally-chartered lenders, "notwithstanding any State constitution, law, or regulation." 12 U.S.C. §3803(c). The Home Ownership and Equity Protection Act of 1994, codified at 15 U.S.C. §§ 1602(aa), 1610, 1639, and 1640, forbids lenders from using particular terms in home mortgage transactions. The question presented by this appeal is whether the 1994 Act's regulation of all home mortgage lenders repeals the 1982 Act's rule of parity between state and federal institutions in alternative mortgage transactions. The district court answered yes and held that, as a result, regulations imposing extra restrictions on state-chartered lenders in Illinois are valid. Illinois Ass'n of Mortgage Brokers v. Office of Banks & Real Estate, 174 F. Supp. 2d 815 (N.D. Ill. 2001). We answer no. The 1994 Act does not repeal the 1982 Act in so many words, and implied repeal occurs only when the statutes are irreconcilable. See J.E.M. Ag Supply, Inc. v. Pioneer Hi-Bred International, Inc., 534 U.S. 124, 141-44 (2001) (collecting authority). All the district court concluded, however, is that the 1982 and 1994 Acts concern the same subject matter. That is not, and never has been, enough to show that the most recent statute repeals its predecessors. Substantive rules in one law are not logically incompatible with an equal-treatment rule in another, so both remain effective.

What Illinois has done is to issue regulations that augment--for state-chartered lenders only--restrictions of the kind imposed by the 1994 Act. The handling of balloon payments provides an example. Under the 1994 Act, if a home equity loan carries an interest rate more than 10% over the rate for Treasury securities of comparable maturity, then the loan may not include a balloon payment (which effectively compels refinancing) unless the loan's duration exceeds five years. 15 U.S.C. §§ 1602(aa), 1639(e).

Under the state regulations, if a home equity loan carries an interest rate more than 6% over the Treasury rate (8% for junior mortgages), then no balloon payment may be scheduled before the loan's 15th year. 38 Ill. Admin. Code §§ 1050.155, 1050.1270. Thus a federal lender lawfully may extend mortgage credit at 9% over the Treasury rate with a balloon payment in Year 3, or at 12% over the Treasury rate with a balloon payment in Year 6, but a lender chartered in Illinois is forbidden to make either of these loans. The state regulations create other differences concerning prepayment penalties and amortization schedules, but it is unnecessary to detail them.

Plaintiff, an association of mortgage lenders, filed this suit seeking a declaratory judgment that the state regulations are preempted by virtue of §3803(c) as applied to lenders that comply with all applicable federal laws and regulations. The district judge concluded that the Association has standing as a representative of its members. 174 F. Supp. 2d at 818-20. The point is uncontested on appeal, but because it is jurisdictional we have given it independent consideration and agree with the judge's conclusion.

Another jurisdictional issue escaped the district judge's eye, however: the state agency contends that under the eleventh amendment a federal court lacks jurisdiction to entertain the suit. The Office of Banks and Real Estate, an agency of state government and thus part of the State of Illinois, is entitled to the State's immunity from suit. The Association contends that as long as it seeks prospective relief the eleventh amendment melts away. This is wrong, see Cory v. White, 457 U.S. 85, 90-91 (1982); Alabama v. Pugh, 438 U.S. 781 (1978), but there is no need to consider whether the Constitution gives Illinois an immunity unless some federal statute gives the Association a claim for relief. See Lapides v. University of Georgia, 122 S. Ct. 1640, 1643 (2002). Section 3803(c) does not authorize lawsuits (though it may provide a defense to them). To come into court as the plaintiff, the Association relies on 42 U.S.C. §1983. Yet a state is not a "person" for purposes of §1983 and therefore may not be named as a defendant in a suit under that law. See Arizonans for Official English v. Arizona, 520 U.S. 43, 69 (1997); Will v. Michigan Department of State Police, 491 U.S. 58 (1989). Plaintiff has not called to our attention any other relevant federal statute that authorizes a suit directly against a state or one of its agencies.

Nonetheless the agency's director, William Darr, a second defendant, is subject to suit even though relief would run against him in his official capacity. See Will, 491 U.S. at 71 n.10. For such a person, Ex parte Young, 209 U.S. 123 (1908), eliminates any constitutional impediment to suit. See also Verizon Maryland Inc. v. Public Service Commission of Maryland, 122 S. Ct. 1753 (2002). Although the Supremacy Clause does not of its own force create rights enforceable under §1983, some statutes with preemptive force may do so. See Golden State Transit Corp. v. Los Angeles, 493 U.S. 103, 107-08 (1989). It is not necessary for us to determine whether the 1982 Act is such a statute, cf. Gonzaga University v. Doe, 122 S. Ct. 2268 (2002), because federal jurisdiction is supplied by 28 U.S.C. §1331 in any event. For the reasons given in Illinois v. General Electric Co., 683 F.2d 206, 211 (7th Cir. 1982), that statute supplies jurisdiction when the plaintiff seeks declaratory relief against regulation by a state agency and contends that the agency has violated federal law by adopting particular regulations. See also Northeast Illinois Regional Commuter R.R. v. Hoey Farina & Downes, 212 F.3d 1010, 1015-16 (7th Cir. 2000). So the agency must be dismissed as a defendant, but the suit may proceed against Darr.

This opinion's opening paragraph says all that is necessary to resolve the principal issue on appeal: the 1994 Act neither repeals the 1982 Act in terms nor is logically inconsistent with it, so the two may coexist. Accord, National Home Equity Mortgage Ass'n v. Face, 239 F.3d 633 (4th Cir. 2001). The Office of Thrift Supervision, which issues the federal regulations in this field, agrees; the explanation accompanying its latest set of rules, 67 Fed. Reg. 60542 (Sept. 26, 2002), demonstrates that the OTS views the 1982 Act as fully effective today. Illinois tries to make headway with 15 U.S.C. §1610(b), which provides:

Except as provided in section 1639 of this title, this subchapter does not otherwise annul, alter or affect in any manner the meaning, scope or applicability of the laws of any State, including, but not limited to, laws relating to the types, amounts or rates of charges, or any element or elements of charges, permissible under such laws in connection with the extension or use of credit, nor does this subchapter extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply. The provisions of section 1639 of this title do not annul, alter, or affect the applicability of the laws of any State or exempt any person subject to the provisions of section 1639 of this title from complying with the laws of any State, with respect to the requirements for mortgages referred to in section 1602(aa) of this title, except to the extent that those State laws are inconsistent with any provisions of section 1639 of this title, and then only to the extent of the inconsistency.

This tells us that the 1994 Act does not itself preempt any state law--except that state laws about the mortgage transactions defined in §1602(aa) may not be more tolerant than the federal floor adopted in §1639. This does not alter the preemptive effect of other statutes, however; §1610(b) deals with "this subchapter" of Title 15, while the 1982 Act is codified in Title 12. Nor, contrary to Illinois' view, does §1610(b) say that if a given loan meets the criteria of §1602(aa) then states may add restrictions to the list in §1639. Although §1610(b) provides that nothing in the 1994 Act forbids states from regulating, it does not foreclose the possibility that some other federal law contains such a prohibition.

The City of Chicago, appearing as amicus curiae, adopts a different tack. It contends that §3803(c) does not provide the clear statement required for preemption. What §3803(c) says is this:

An alternative mortgage transaction may be made by a housing creditor in accordance with this section, notwithstanding any State ...


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