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Tribett v. BNC Mortgage

January 17, 2008

ERROL TRIBETT AND NIKITA TRIBETT, ON BEHALF OF THEMSELVES AND THE CLASSES DEFINED HEREIN, PLAINTIFFS,
v.
BNC MORTGAGE, INC. AND PAN AMERICAN MORTGAGE, LLC. DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiffs Errol Tribett and Nikita Tribett (the "Tribetts" or "Plaintiffs") filed suit against Defendants BNC Mortgage, Inc. ("BNC") and Pan American Mortgage, LLC ("Pan American") (collectively "Defendants") alleging various claims related to the financing of the Tribetts's purchase of a home. The case involves three class action claims (Counts I-III) and two individual claims on behalf of the Tribetts (Counts IV and V*fn1): (1) violation of the Fair Housing Act ("FHA") against BNC and Pan American; (2) violation of the Equal Credit Opportunity Act ("ECOA") against BNC and Pan American; (3) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("CFA" or "Consumer Fraud Act") against BNC and Pan American (class action claim); (4) violation of the Consumer Fraud Act against BNC and Pan American (individual claim); and (5) breach of fiduciary duty against Pan American. BNC moves to dismiss the Complaint as it relates to BNC. For the reasons stated herein, BNC's Motion to Dismiss is granted and the Plaintiff is given leave to file an amended complaint within 21 days.

PLAINTIFFS' ALLEGATIONS

Plaintiffs Errol Tribett and Nikita Tribett, husband and wife, ("the Tribbetts") are an African-American couple living in Richton Park, Illinois. (Compl. ¶¶ 4-5.) BNC is in the business of making and servicing residential mortgage loans. (Compl. ¶ 6.) Pan American is a mortgage broker and lender. (Compl. ¶ 7.)

In June 2005, the Tribetts purchased their current home in Richton Park. (Compl. ¶ 8.) In order to purchase this home, the Tribetts sold their previous home on May 31, 2005. (Compl. ¶ 9.) During the interim period between the sale of their old home and the purchase of their new home, the Tribetts placed their household goods in storage and stayed in a hotel with their three children. (Id.) Prior to the purchase of their new home, the Tribetts applied for financing through Mark Welrich ("Welrich"), a broker employed by Pan American. (Compl. ¶¶ 10-11.) Welrich met with the Tribetts, took the necessary information and supporting documents for the loan application, and informed the Tribetts that they would receive an interest rate of no higher than 8%. (Compl. ¶ 11.) Welrich also informed the couple that the closing fees would not exceed 1%. (Id.) Based on these representations, the Tribetts concluded that they could afford to purchase a new home. (Id.) Subsequently, Pan American applied for financing (on behalf of the Tribetts) from BNC. (Compl. ¶ 12.) Neither Welrich nor Pan American provided the Tribetts with the required preliminary disclosures, nor did they inform the Tribetts of the identity of their prospective lender. (Id.)

At closing, the Tribetts learned for the first time that BNC had decided to grant them two separate loans (one for $236,000 and another for $59,000) rather than one loan and that such loans would be made at an interest rate higher than the rate initially promised to the Tribetts. (Compl. ¶ 13, 15.) The Tribetts also learned that they were being charged in excess of 1% in closing fees.

(Compl. ¶ 14.)

Subsequently, the Tribetts discovered that Welrich and Pan American falsely reported the value or sale price of the Tribetts's previous home on the pre-printed loan application prepared by Welrich and Pan American. (Compl. ¶ 16.) Specifically, the application reflected a value of $295,000 for the home, when it was actually worth $155,000. (Id.) The Tribetts allege that Welrich and Pan American, who had the Tribetts sign the loan application before the closing, falsified this information to ensure that Welrich and Pan American would receive a broker fee and commission, respectively. (Compl. ¶¶ 16-17.) Pan American and Welrich knew that the Tribetts were in a vulnerable position and could not afford to cancel the transaction. (Comp. ¶ 21.) Thus, in light of Plaintiffs' position, the couple proceeded with the financing arranged by Pan American. (Id.)

In connection with the mortgage transaction, Pan American received broker compensation totaling $6,185 from the Tribetts and BNC. (Compl. ¶ 24.) The Tribetts paid Pan American a total of $2,645, including a direct brokerage fee of $2,360. (Compl. ¶¶ 14, 18.) BNC paid Pan American a "yield spread premium" of $3,450. (Compl. ¶ 19.) As relevant to this case, a "yield spread premium' ("YSP") is a payment made by a lender to a broker when a borrower agrees to pay an interest rate higher than the lender's "par" or "base" rate. (Compl. ¶ 22.) Calculation of the YSP amount is based on how much the interest rate paid by the borrower exceeds the lender's "par" or "base" rate. (Id.) Because a lender in willing to make the loan at a "par" or "base" rate, a lender's payment of a YSP to the broker and the broker's imposition of a higher interest rate on the borrower's loan are action take without regard to the borrower's creditworthiness. (Compl. ¶ 23.) Plaintiffs allege that "[YSPs] disproportionately impact minority borrowers, such as themselves." (Compl. ¶ 26.) They further alleged that "[t]his result is known and intended by the Defendants." (Id.)

As a result of Defendants' conduct, the Tribetts were induced to sign loan documents providing for a loan that was "unnecessarily expensive" and "made on less favorable terms" than loans brokered or made to Caucasian individuals. (Comp. ¶ 27.) With respect to Count I, the Tribetts further allege that BNC and Pan American violated the FHA by paying and receiving, respectively, higher YSPs on the "loans made to minority borrowers, which necessarily impacts the rates charged to such borrowers." (Compl. ¶ 30.) With respect to the class action allegations of Counts I and II, the Tribetts also allege that "[t]he predominant common question is whether the payment and receipt of [YSPs] results in loan terms . . . [that] are intended to discriminate or have the effect of discriminating against Hispanic or African-American borrowers." (Compl. ¶¶ 36, 48.)

STANDARD

When considering a motion to dismiss under Rule 12(b)(6), a court must accept as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). To state a claim upon which relief can be granted, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A plaintiff need not allege all facts involved in the claim. See Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994). However, in order to survive a motion to dismiss for failure to state a claim, the claim must be supported by facts that, if taken as true, at least plausibly suggest that the plaintiff is entitled to relief. See Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). Such a set of facts must "raise a reasonable expectation that discovery will reveal evidence" of illegality. Id. at 1965.

DISCUSSION

I. Violations of the FHA (Count I) and the ECOA ...


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