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MURRY v. AMERICA'S MORTGAGE BANC

July 6, 2004.

WILLIE C. MURRY and WYLODEAN MURRY, Plaintiffs,
v.
AMERICA'S MORTGAGE BANC, INC.; THE LOAN ARRANGER, INC.; CLEARWATER TITLE COMPANY; PARAGON HOME LENDING, LLC; HOMECOMINGS FINANCIAL NETWORK, INC., MICHAEL ROBINS; and JOHN DOES 1-5, Defendants.



The opinion of the court was delivered by: RONALD GUZMAN, District Judge

AMENDED MEMORANDUM OPINION AND ORDER

Defendants Homecomings Financial Network ("HFN"), America's Mortgage Banc, Inc. ("AMB"), and Paragon Home Lending, LLC ("Paragon") move to dismiss the Second Amended Complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons set forth herein, the Court grants in part and denies in part Paragon's motion, grants in part and denies in part HFN's motion, and denies AMB's motion.

BACKGROUND

  On some date before April 3, 2002, the Murrys hired The Loan Arranger, Inc. ("Loan Arranger") as their mortgage broker to find financing for them. (Second Am. Compl. ¶ 14.) Loan Arranger arranged for a mortgage loan with AMB in the principal amount of $74,000, to be secured by their primary residence. (Id. ¶ 15.) On April 3, 2002, the loan was closed and assigned to Paragon. (Id. ¶¶ 16, 28.) The Murrys were directed to pay, and have been paying, HFN, who has been servicing the loan for AMB. (Id. ¶¶ 10, 29.) In consummating this transaction, the Murrys signed or received a note, various disclosure forms, and a Truth in Lending disclosure statement. (Id. ¶ 17.) That statement listed charges in connection with the loan, among them charges for title insurance in the amount of $1,595 — $450 to Lakeshore Title Agency and $1,145 to Clearwater Title Co. (Id. ¶¶ 18-20.)

  The amount paid to Clearwater Title is the root from which this complaint arises, for the Murrys allege that this payment was actually an "indirect broker fee," being paid to Loan Arranger, who owns Clearwater Title. (Id. ¶¶ 26-27.) Loan Arranger and Clearwater Title allegedly conspired to overcharge their customers under the guise of title insurance without having to disclose the amount of the finance charge to consumers under the Truth in Lending Act ("TILA"). (Id.) As a broker fee, Plaintiffs allege, the $1,145 should have been included in the finance charge amount. (Id. ¶ 27.) As a result of the exclusion of the Clearwater Title charge from the disclosed finance charge, the disclosed finance charge on the Murrys' transaction is understated, and the amount financed is allegedly overstated by $1,145, an amount in excess of 0.5% of the total amount of credit extended. The Murrys are now before this Court, on behalf of themselves and a putative class of similarly situated individuals, asking for rescission of the mortgage loans pursuant to 15 U.S.C. § 1641, and statutory damages under 15 U.S.C. § 1635(g).

  DISCUSSION

  On a motion to dismiss, all well-pleaded factual allegations are presumed to be true. Johnson v. Martin, 943 F.2d 15, 16 (7th Cir. 1991). "The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits." Triad Assocs., Inc. v. Chicago Hous. Auth. 892 F.2d 583, 586 (7th Cir. 1989). In considering a motion to dismiss, the court must accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Gibson v. City of Chicago, 910 F.2d 1510, 1520-21 (7th Cir. 1990). Therefore, a complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

  HFN, AMB, and Paragon move to dismiss Plaintiffs' complaint on three independent grounds. Initially, Defendants aver that TILA, 15 U.S.C. § 1601 et seq., in conjunction with 12 C.F.R. § 226.4 ("Regulation Z"), do not mandate that charges in connection with title insurance be included in the total dollar amount of a finance charge. As such, according to Defendants, the Murrys' request for rescission is barred by the three-day time limit imposed by TILA, and any other claim is barred by the one-year statute of limitations. Secondly, Defendant HFN alleges that it is not a necessary party to this litigation under Rule 19. Finally, Defendants aver that the Murrys fail to state a claim for which relief can be granted under the Illinois Consumer Fraud and Deceptive Practices Act.

  I. Counts I & II: TILA Claims

  Initially, the Court notes that TILA "must be liberally construed in favor of the consumer." Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155, 157 (N.D. Ill. 1993) (quotations omitted). Congress enacted TILA to ensure 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." 15 U.S.C. § 1601(a) (2004); see Mourning v. Family Publ'ns Serv., Inc., 411 U.S. 356, 363-68 (1973) (discussing purpose and history of TILA). Congress was particularly concerned about the practice engaged in by many lenders of advertising low credit rates to attract customers but then burying the cost of those lower credit rates by increasing the price of goods sold. Mourning, 411 U.S. at 365. Here, the Murrys claim that Defendants did just that by advertising low credit rates but then later recouped the cost of those rates by falsely charging more for title insurance.

  A. Accuracy of Finance Charge

  To preclude lenders from engaging in the type of scheme alleged by the Plaintiffs, TILA requires that before a creditor may enter a transaction with a consumer, he must disclose to the consumer the method by which the creditor determines the principal balance on the loan, the amount of the finance charge imposed on the loan, the applicable financing rates, and any other charges which may be imposed in addition to the finance charge. 15 U.S.C. § 1637. In credit transactions such as the one here, where a security interest is retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest will be subject to the security interest has until midnight of the third business day following his receipt of all necessary disclosures, as required by TILA, to rescind the transaction. 12 C.F.R. § 226.23. This includes an accurate statement of the finance charge. Id.; 12 C.F.R. § 226.32. If the creditor does not fully comply with TILA, i.e., "[i]f the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's interest in the property, upon sale of the property, whichever occurs first." See 12 C.F.R. § 226.23(a)(3).

  The question thus becomes whether the Defendants have violated TILA by failing to disclose finance charges, as they are required to do under 15 U.S.C. § 1637. In order to answer this question, the Court must first consider what constitutes a finance charge for purposes of TILA.

  TILA defines the term "finance charge" as "the sum of all charges, payable directly or indirectly by the creditor as an incident to the extension of credit." 15 U.S.C. § 1605(a). The finance charge does not include fees and amounts imposed by third-party closing agents, such as settlement agents, attorneys, and escrows and title companies "if the creditor does not require the imposition of the charges or the services provided and does not retain the charges." Id.; see also 12 C.F.R. § 226.4(c)(7)(i). According to TILA, where the "extension of credit [is] secured by an interest in real property . . . [f]ees or premiums for title examination, title insurance, or similar purposes" "shall not be included in the computation of the finance charge." 15 U.S.C. § 1605(e). TILA does, however, include broker fees, ...


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