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MANUFACTURERS & TRADERS TRUST v. HUGHES

July 29, 2003

MANUFACTURERS & TRADERS TRUST COMPANY, AS ASSIGNEE, ET AL, PLAINTIFFS,
v.
ROY HUGHES, ET AL., DEFENDANTS



The opinion of the court was delivered by: Joan Gottschall, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Manufacturers & Traders Trust Company ("MTT") moved for summary judgment in its favor for its mortgage foreclosure claim against defendants Roy and Lessie Hughes, as well as for the Hughes' counterclaims alleging statutory and common law fraud. The key issue is whether under Illinois law, MTT, who was assigned the mortgage while this foreclosure suit was pending, is subject to counterclaims or affirmative defenses based on the deceptive practices of MTT's predecessor, ContiMortgage Corporation ("ContiMortgage"). As explained below, neither of the Hughes' counterclaims arc viable against MTT as ContiMortgage's assignee, so the court grants summary judgment for MTT on the counterclaims. However, because the Hughes have a viable affirmative defense to the mortgage foreclosure, this case must proceed to trial on MTT's foreclosure claim. MTT's motion for summary judgment is therefore granted in part and denied in part. [ Page 2]

Background

Defendants Roy Hughes, 82 years old, and Lessie Hughes, 66 years old, have owned their home, the subject of the present mortgage foreclosure suit, since 1983, Prior to their purchase, Mrs. Hughes had lived in the house as a renter since 1969. On June 23, 1998, the Hughes refinanced their mortgage loan with World Wide Financial Services, Inc. ("World Wide") to create a 15-year $70,000 loan requiring monthly mortgage payments of $807.30 (excluding taxes and insurance) and a balloon payment of $62,670.24 due after 15 years. The World Wide mortgage carried an interest rate of 13.6% per year. That same day, World Wide assigned the Hughes' mortgage to ContiMortgage.

A few months later, a ContiMortgage agent called the Hughes and asked them if they wanted to refinance their existing mortgage. According to Mrs. Hughes' deposition testimony, the agent explained that ContiMortgage could provide them with a loan that would include an escrow for taxes and insurance in their monthly payment while reducing their existing monthly mortgage payment.*fn1 Based on these representations, the Hughes agreed to meet with a ContiMortgage representative on February 11, 1999, During this meeting, the Hughes signed a Uniform Residential Loan Application that indicated they were seeking to obtain a loan for $88,250 and that the purpose of refinancing the World Wide mortgage was to obtain a "Lower Interest Rate." They also signed all the documents presented to them by the ContiMortgage [ Page 3]

agent in that meeting, thus entering into a 15-year loan agreement with ContiMortgage. Although the new ContiMortgage Loan carried a lower interest rate of 11.17% per year, the Hughes were required to make higher monthly mortgage payments of $851,79 (exclusive of insurance and taxes), with a balloon payment in the amount of $75,090.34 due on March 1, 2014. ContiMortgage also charged the Hughes a $5,295 fee (6% of the loan) at closing, which was financed into the loan.

Both Mr. and Mrs. Hughes have trouble reading due to their limited education and, for Mr. Hughes, eyesight problems. They were not able to read the loan documents presented to them, but relied on the representations made by ContiMortgage when agreeing to the loan. Mrs. Hughes also testified that despite repeated requests, they were not provided with copies of the documents they signed. Soon after the loan was originated, the Hughes fell behind on their payments.

ContiMortgage commenced this foreclosure proceeding against the Hughes on September 7, 1999. In response, in addition to answering the complaint, the Hughes raised affirmative defenses and counterclaims against ContiMortgage, claiming that ContiMortgage violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILCS 505/1 et seq., and committed common law fraud when it originated their loan. On May 11, 2001, ContiMortgage's counsel orally moved to substitute MTT for ContiMortgage as the party plaintiff because the loan had been sold to MTT during the pendency of the foreclosure litigation. The Hughes filed their Second Amended Affirmative Defenses and Counterclaims on September 24, 2002, alleging in both the first affirmative defense and first counterclaim that ContiMortgage's practices violated the ICFA, and alleging in both the second affirmative [ Page 4]

defense and second counterclaim that ContiMortgage committed common law fraud, MTT filed an answer to these claims on September 27, 2002, Thereafter, MTT filed the instant motion seeking summary judgment for both the foreclosure claim and the Hughes' counterclaims.

Analysis

Summary judgment is only appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c), The moving party, MTT in this case, has the initial burden of proving that no genuine issue of material fact exists. Matsushita Elec. Indust. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Once the moving party shows that there is no genuine issue of material fact, the burden shifts to the nonmoving party to designate specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The court must examine the admissible evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

The Hughes' Counterclaims

Neither of the counterclaims are viable against MTT, as ContiMortgage's assignee, because they are based solely on ContiMortgage's misconduct, not MTT's. In the first counterclaim, the Hughes contend that ContiMortgage violated the ICFA by making misrepresentations about the costs and benefits of refinancing their mortgage, Specifically, the Hughes allege that the representations made by ContiMortgage during the telephone solicitation and in the February 11, 1999 meeting differed from the actual terms of the mortgage as set forth [ Page 5]

in the loan documents. To prevail in a counterclaim under section 2 of the ICFA, the Hughes must prove: "(1) a deceptive act or practice by the [plaintiff]; (2) the [plaintiffs] intent mat the [defendants] rely on the deception; and (3) that the deception occurred during a course of conduct involving trade or commerce." Connick v. Suzuki Motor Co., Ltd, 675 N.E.2d 584, 593 (Ill. 1996). Liability under the ICFA is limited to those persons that directly participated in the fraudulent or deceitful conduct, however. See Jackson v. S. Holland Dodge, Inc., 755 N.E.2d 462, 469-71 (Ill. 2001); Zeckman v. Direct Am. Marketers, Inc., 695 N.E.2d 853, 859 (Ill. 1998). As the Illinois Supreme Court has held, an assignee cannot be liable under the ICFA unless the assignee's participation in the deceptive lending practice was "active and direct," or, for ICFA claims based on the assignor's ...


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