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MARQUEZ v. NEW CENTURY MORTGAGE CORP

April 2, 2004.

CANALES JOSE INES MARQUEZ and MARIA S. MARQUEZ, Plaintiffs,
v.
NEW CENTURY MORTGAGE CORPORATION; TAMAYO FINANCIAL SERVICES, INC. PRESIDENTIAL TITLE, INC.; JUAN TAMAYO, JR.; JOSE TAMAYO; LUIS TAMAYO, and DOES 1-5; Defendants



The opinion of the court was delivered by: BLANCHE MANNING, District Judge

MEMORANDUM AND ORDER

Plaintiffs Canales Jose Ines Marquez and Maria S. Marquez bring this three-count Complaint against a mortgage lender, a mortgage broker, and related parties. Counts I and II allege individual and class violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA") and Regulation Z, 12 C.F.R. § 226, against New Century Mortgage Corporation ("New Century") and the John Doe defendants. Count III alleges violations of the Illinois Consumer Fraud Act, 815 ILCS 505/2 et seq., against all of the named defendants. Before this Court is New Century's Motion to Dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6), Defendants, Tamayo Financial Services, Inc., Presidential Title, Inc., Juan Tamayo, Jr., Jose Tamayo, and Luis Tamayo, have also filed a Motion to Dismiss Count III of the Complaint. For the following reasons, the Court grants New Century's Motion to Dismiss Counts I, n, and III, including the portions of the Complaint which purport to state a claim on behalf of a class. Page 2 The Court declines to exercise supplemental jurisdiction over the remaining state law claims in Count III, and therefore, dismisses without prejudice Count III of the Complaint against the remaining defendants.

I. STANDARD UNDER RULE 12(b)(6)

  In ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must assume the truth of the facts alleged in the pleadings, construe the allegations liberally, and view them in the light most favorable to the plaintiff. See Flannery v. Recording Indus, Assoc. of Am., 354 F.3d 632, 637 (7th Cir. 2004); Mickey v. O'Bannon. 287 F.3d 656, 657-58 (7th Cir. 2002). When considering a motion to dismiss, this Court is restricted to reviewing the pleadings, which consist of the complaint, any attached exhibits, and the supporting briefs. See Thompson v. Illinois Dept. of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Under Rule 12(b)(6), dismissal is appropriate if there is no possible interpretation of the complaint under which it can state a claim. See Flannery, 354 F.3d at 637.

 II. BACKGROUND

  Assuming the truth of the facts as alleged in the Complaint, on or about February 27, 2003, the plaintiffs, who are husband and wife, obtained a mortgage loan in the amount of $68,000 from New Century. The plaintiffs were refinancing their mortgage on their home located at 5514 South Hamilton Avenue, Chicago, Illinois. The plaintiffs applied for their mortgage loan with defendant Tamayo Financial Services ("Tamayo Financial"), a mortgage broker; On behalf of the plaintiffs, Tamayo Financial arranged for the mortgage from New Century. Defendant Presidential Title ("Presidential") provided closing services and title insurance. Both Tamayo Financial and Presidential are owned by defendants Juan Tamayo, Jr., Page 3 Jose Tamayo, and Luis Tamayo (the "Tamayos").

  The plaintiffs allege that the finance charges disclosed in their TILA documents were understated, thus giving them the right to rescind their mortgage from New Century. First, the plaintiffs claim that the cost of their title insurance was not bona fide and reasonable under TILA because Chicago Title quoted a significantly lower amount for title insurance for a refinanced mortgage. Therefore, plaintiffs contend that the cost of their title insurance should have been reflected under the finance charges pursuant to TILA and Regulation Z. Second, the plaintiffs allege that they were overcharged for recording the mortgage with the Cook County Recorders Office. Finally, plaintiffs allege that New Century erroneously charged them for recording a release of a prior mortgage that was already recorded and paid for by a prior lender, CitiFinancial Mortgage. However, attachments to the Complaint indicate that there were two prior mortgages on the plaintiffs' home at 5514 South Hamilton.*fn1

  In any event, the plaintiffs contend that the exclusion of these charges from the disclosed finance charges resulted in their finance charges being understated in excess of the tolerance for accuracy of one half of one percent of the loan principal under TILA. See 15 U.S.C. § 1605(f); Regulation Z, 12 C.F.R. § 226.23(g)(1). Therefore, the plaintiffs seek to rescind their mortgage. Page 4

 III. ANALYSIS

  The purpose of TILA is to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." See 15 U.S.C. § 1601(a); see also Carmichael v. The Payment Or., Inc., 336 F.3d 636, 639 (7th Cir. 2003) ("Act's main purpose is to allow consumers to compare credit rates so that they may make an informed use of credit"). Under TILA and Regulation Z, lenders are required to make disclosures to consumers regarding the charges and fees that accompany the extension of credit. See O'Brien v, J.I. Kislak Mortgage Corp., 934 F. Supp. 1348, 1356 (S.D. Fla. 1996), Accordingly, lenders must disclose finance charges to ensure that the costs of securing credit are not obscured or hidden. See id. Where a lender does not accurately disclose finance charges, a plaintiff may bring a TILA action for the equitable remedy of rescission. See Quinn v. Ameriquest Mortgage Co., 03 C 5059, 2004 WL 316408, at *4 (N.D. Ill. Jan. 26, 2004).

  Regulation Z lists charges associated with real estate transactions that are excluded from the definition of "finance charges", including fees for title insurance, as long as these fees are bona fide and reasonable. See 12 C.F.R. § 226.4(c)(7)(i). Here, the plaintiffs argue that the $665.00 they paid for title insurance was not bona fide and reasonable, and therefore, should have been listed under the finance charge section of their TILA documents. As such, they contend that by failing to include the $665.00, New Century understated their finance charges in violation of TILA.

  To dissuade plaintiffs from attempting to rescind mortgages as a result of minor TILA Page 5 violations, Congress amended the statute to allow for finance charges to be considered accurate if the "amount disclosed as the finance charge does not vary from the actual finance charge by more than an amount equal to one half of one percent of the total amount of credit extended." See Walker v. Gateway Fin. Corp., 286 F. Supp.2d 965, 967 (N.D.Ill. 2003) (citing 15 U.S.C. § 1605(f)); see also 12 C.F.R, § 226.23(g) (tolerances of accuracy regulation). Therefore, this Court turns to whether the disclosed finance charges in the plaintiffs' TILA documents fell within the permissible range of tolerance, that is, one half of one percent.

  The plaintiffs' mortgage note indicates that they borrowed $68,000. Thus, one half of one percent of the total amount of credit extended equals $340.00. Simply put, the plaintiffs have the right to rescind their mortgage if the disclosed finance charge was understated by more than $340.00. As mentioned, the plaintiffs contend that their title insurance fees should have been included in the finance charge and thus, the finance charges indicated in their TILA documents were understated by $665.00.

  The plaintiffs' calculation, however, fails to take into account that the $665.00 they were charged for title fees must be subtracted by what the plaintiffs claim to be a bona fide and reasonable amount, or $349.95, which is Chicago Title's rate for a refinanced mortgage. See Walker, 286 F. Supp.2d at 968; see also Quinn, 2004 WL 316408, at *3-4. In other words, subtracting $349.95 from what the plaintiffs actually paid takes into account the amount of title fees that the plaintiffs contend are bona fide and reasonable — fees that are properly excluded from the finance charges pursuant to 12 C.F.R. § 226.4(c)(7)(i). See Scott v, Indymac Bank, 03 C 6489, 2004 WL 422654, at *2 (N.D. Ill. Feb. 3, 2004) ("inclusion of the actual amount would render the tolerance meaningless"). Thus, the Court subtracts $349.95 from $665.00, which Page 6 equals $315,05, an amount that is less than the $340.00 required to rescind the mortgage ...


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