The opinion of the court was delivered by: BLANCHE MANNING, District Judge
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.
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.
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.,
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.
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
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
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
equals $315,05, an amount that is less than the $340.00 required to
rescind the mortgage ...