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Ware v. Indymac Bank

February 14, 2008

CARTER WARE AND THELMA WARE, PLAINTIFFS,
v.
INDYMAC BANK, FSB, HOMESTART MORTGAGE CORPORATION, CITIMORTGAGE, INC., MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AND DOES 1-5, DEFENDANTS.



The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs Carter and Thelma Ware filed a seven-count amended complaint against defendants Homestart Mortgage Corporation ("Homestart"), Indymac Bank, F.S.B. ("Indymac"), CitiMortgage, Inc. ("CitiMortgage"), and Mortgage Electronic Registration Systems, Inc. ("MERS") alleging: (1) violation of the Fair Housing Act ("FHA"), 42 U.S.C. § 3605, against Homestart and Indymac on behalf of two classes; (2) violation of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691, against Homestart and Indymac on behalf of two classes; (3) violation of the Illinois Consumer Fraud Act and Deceptive Business Practices Act ("ICFA"), 815 ILL. COMP. STAT. 505/2, against Homestart and Indymac on behalf of two classes; (4) violation of the ICFA against Homestart and Indymac; (5) violation of the Truth in Lending Act ("TILA") against Indymac, CitiMortgage, and MERS seeking rescission under 15 U.S.C. § 1635 and 12 C.F.R. § 226.23 and statutory damages; (6) violation of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679b, against Homestart; and (7) breach of fiduciary duty against Homestart. Pursuant to FED. R. CIV. P. 12(b)(6), Homestart moves to dismiss Counts I-IV, VI, and VII; Indymac moves to dismiss Counts I through V; and CitiMortgage and MERS move to dismiss Count V. For the following reasons, Homestart's motion is granted in part and denied in part; Indymac's motion is granted in part and denied in part; CitiMortgage's motion is granted in part and denied in part; and MERS' motion is denied. Accordingly, Count III against Homestart and Indymac is dismissed in its entirety; the portion of Count V for rescission against Indymac and CitiMortgage based on the inadequacy of the Notice of Right to Cancel is dismissed; and the portion of Count V for statutory damages against CitiMortgage based on the inadequacy of the Notice of Right to Cancel is dismissed.

I.

The amended complaint alleges the following facts. Plaintiffs are African-American husband and wife who entered into two loans for $280,000.00 and $49,000.00 in November 2005. Homestart, through its employee Jerri Benefield ("Benefield"), acted as the mortgage broker for the November 2005 loans. Previously, plaintiffs had refinanced with Homestart in March 2004 and had obtained a loan through Homestart on or about March 25, 2005. MERS holds title to the mortgages that resulted from the November 2005 loans. Indymac and CitiMortgage own plaintiffs' loans. Plaintiffs continue to make payments to Indymac on the larger loan. Plaintiffs were directed to make payments to CitiMortgage on the smaller loan.

Benefield contacted Mr. Ware in October 2005 and solicited him for a refinance mortgage loan. During the application process for a no documentation loan, Benefield orally requested from plaintiffs, and plaintiffs orally provided to her, information concerning their employment, income, assets, home, and other pertinent matters. The closing took place at plaintiffs' home over the course of two days - November 1 and 2, 2005. At the closing, Homestart brokered two loans through Indymac. Plaintiffs were not informed that they were being given two loans, one of which would have a prepayment penalty and the other of which would have a balloon payment. Benefield rushed plaintiffs through the closing and failed to explain the loan documents or terms. Plaintiffs were not provided with copies of the TILA financial disclosures or notices of right to cancel at the time of the closing. Rather, copies of the loan documents were sent to them by mail following the closing.

Plaintiffs paid Homestart broker fees in connection with the November 2005 loans. In addition, Indymac paid Homestart a yield spread premium ("YSP"). A YSP is a payment by a lender to a broker based on the extent to which the interest rate on the loan exceeds a base or "par" rate. The lender's payment of a YSP to the broker, and the broker's imposition of a higher interest rate, are unrelated to the borrower's creditworthiness. Plaintiffs allege that YSPs disproportionately impact minority borrowers, which is known and intended by defendants.

Plaintiffs allege that Benefield and/or Homestart intentionally falsified information regarding their employment, income, and assets on the loan applications for both the March 2005 and the November 2005 loans in order to make it appear as though they qualified for a bigger loan, thereby increasing the amounts of Benefield's and Homestart's commission and fees. Plaintiffs further allege they were unaware of the alleged falsification of information until after they contacted their current counsel. Specifically, plaintiffs allege that, in connection with the March 2005 loan, Mrs. Ware's monthly income and the purchase price of their home were overstated on the loan application. Plaintiffs further allege that, in connection with the November 2005 loans, plaintiffs' combined income was overstated on the loan application. Plaintiffs allege that they were induced to sign loan documents providing for a loan that was unnecessarily expensive, and that was made on less favorable terms than loans to Caucasian individuals. Plaintiffs also allege that defendants' falsification of plaintiffs' financial and asset information has made it difficult to refinance to escape the unfavorable terms.

II.

FED. R. CIV. P. 12(b)(6) provides for dismissal of a complaint for failure to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion, the complaint need only contain a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). The Supreme Court has interpreted this language to require that: (1) the complaint describes the claim in sufficient detail to give the defendant notice of what the claim is and the grounds therefor; and (2) the allegations plausibly suggest the plaintiff has a right to relief above a speculative level. EEOC v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2007) (citing Bell Atlantic Corp. v. Twombly, --- U.S. ---, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007)).

III.

A. Count I

On behalf of the putative classes, plaintiffs allege Homestart and Indymac violated § 3605 of the FHA, which makes it unlawful for any person or entity "whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color . . . . " 42 U.S.C. § 3605. The term "residential real estate-related transaction" is defined to include "[t]he making or purchasing of loans or providing of other financial assistance---(A) for purchasing, constructing, improving, repairing, or maintaining a dwelling; or (B) secured by residential real estate." Id. Plaintiffs allege Homestart and Indymac violated the FHA by receiving and paying, respectively, "higher [YSPs] with respect to loans made to minority borrowers, which necessarily impacts the rates charged to such borrowers." Plaintiffs also allege that YSPs disproportionately impact minority borrowers, which is known and intended by defendants. Plaintiffs further allege that they were induced to sign loan documents for a loan that was unnecessarily expensive and made on less favorable terms than loans brokered with or made to non-minority individuals.

Homestart argues that plaintiffs fail to "demonstrate" that minority borrowers received loans on unfavorable terms while non-minority borrowers obtained loans on better terms. Homestart also argues that plaintiffs fail to show how the YSP was discriminatorily applied. Homestart further argues that plaintiffs have not pled facts linking the payment of the YSP to discrimination. Similarly, Indymac argues that plaintiffs assert bare legal conclusions without any supporting facts. At this stage, plaintiffs are not required to support their facts with evidence. Here, taking the facts alleged in the amended complaint as true, plaintiffs have a right to relief that is more than speculative because they have alleged ...


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