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Gaudie v. Countrywide Home Loans

January 14, 2010


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


Plaintiff Linda M. Gaudie ("Gaudie") brings this suit against Countrywide Home Loans, Inc. ("Countrywide") and Mortgage Electronic Registration Systems, Inc. (collectively, "the Countrywide defendants"), Landsafe Appraisal Services ("Landsafe"), Potestivo Appraisal Services, Inc., and Craig John Potestivo, ("Potestivo"), and Does 1-5 based on claims arising from plaintiff's purchase of a property, on which she tore down the existing building and built a house using funding she obtained through Countrywide. Plaintiff alleges, among other things, that the appraisal Countrywide ordered from Landsafe, and that Landsafe hired Potestivo to perform, was fraudulently or negligently inflated. Defendants removed this case from state court. On May 27, 2009, plaintiff dismissed her two federal causes of action. Plaintiff moved to remand, but that motion is denied as moot in light of the fact that the parties have already demonstrated to the court that diversity jurisdiction is present here. In addition, both the Countrywide defendants*fn1 and Landsafe have moved to dismiss the remaining claims brought against them. For the reasons that follow, those motions are denied.

I. Background

The following facts are taken from plaintiff's complaint. At some point prior to April 2006, plaintiff decided to purchase land in order to build her own home. At that time, she was enrolled in a general contractor's course for owner-builders at Moraine Valley Community College in Palos Hills, Illinois. In late March or early April 2006, Tom Faille ("Faille"), who at that time was in charge of construction lending at Countryside's Oakbrook office, made a presentation to plaintiff's class about a construction financing program available from Countrywide. Faille presented information to the class about Countrywide's One Time Close Loan, in which construction and permanent financing could be obtained in a single transaction with a single application, underwriting and closing process. Countrywide's written marketing materials for the program listed, as a benefit to the borrower, the fact that "Cost of project supported by Appraisal allows for higher loan approval."

By late April 2006, plaintiff had selected a desirable property with a "tear-down" house standing on it. She then followed up with Faille to discuss obtaining purchase money financing from Countrywide. On April 28, 2006, Faille told plaintiff that, upon completion of construction, she would have her choice of loan programs, all at market rate, for the permanent financing. Faille informed plaintiff that an appraiser who was familiar with land values in the area confirmed that the land alone would hold the value of the asking price. According to plaintiff, this representation was false, and was done for the purpose of inducing plaintiff to proceed with both the purchase money transaction and the anticipated, subsequent loan transactions with Countrywide.

Plaintiff maintains that she provided information over the phone to Faille in order to complete a loan application. After she received her written loan application in the mail, she noticed that there were errors relating to the amount of plaintiff's gross monthly income, a bonus payment that was expected but had not yet been received, and her length of employment. She corrected the errors by hand and mailed it back to Countrywide, but never received a copy of the final loan application for any of her loans from Countrywide. Countrywide processed her loans as "no doc" or "limited doc" loans, even though plaintiff received regular biweekly paychecks. According to plaintiff, "no doc" loans are used by sub-prime mortgage lenders to exaggerate or fabricate a borrower's financial information in order to qualify unsuspecting borrowers for loans they could not afford. In May 2006, Countrywide approved plaintiff for a purchase money loan of $314,900, and plaintiff closed on the loan.

After acquiring the land, plaintiff hired an architect to draw up blueprints for construction and presented them to Faille and Countrywide. On or about August 6, 2006, Faille and Countrywide sent plaintiff's blueprints and specifications to Landsafe, an appraisal company affiliated with Countrywide. Landsafe then forwarded copies to Potestivo, who was hired to perform the appraisal. In this prospective appraisal, Countrywide's task was to determine whether or not the property with the house (as completed) would support the loan amount needed to pay off plaintiff's existing mortgage debt and provide sufficient construction funds. On or about September 6, 2006, Potestivo prepared an appraisal report for "Landsafe/Countrywide" stating that the market value of the property, with the home as if newly constructed, was $880,000.

In September 2006, Faille informed plaintiff that she qualified for a One Time Close loan. Faille told plaintiff that she had been approved for a first mortgage loan in the amount of $656,250, which would pay off the existing balance of the purchase money loan from Countrywide and provide funds for construction.

Faille also told plaintiff that, based on the project budget, additional financing in the form of a Home Equity Line of Credit would be necessary, and she was approved for a $126,064 line of credit. Plaintiff never received any of the federally-required written, preliminary disclosures of the loan terms, such as a Good Faith Estimate, a Truth in Lending Act statement and other documents. Faille informed her that, once construction was completed, both the first mortgage loan and the line of credit would convert to permanent financing.

A couple of days before closing, plaintiff received documentation from Countrywide indicating that her first mortgage construction loan was going to be a three-year, interest-only, adjustable rate mortgage with a starting rate of 6.375%, which would eventually adjust to a rate as high as 12.375%. Although Countrywide had represented to plaintiff that she would choose a permanent financing program after construction was completed, Countrywide required her to commit to all of the terms of permanent financing at the closing for the construction loan. At the same time, plaintiff learned that the Annual Percentage Rate of her line of credit would not be the prime rate (as Faille had told her) but rather would be 12.5%, which was "prime plus four." Compl. ¶ 59. Plaintiff called Faille to complain and he told her that the documents had to be drawn up in this manner in order for the loan to go through, and that she would still get the market rate on the first mortgage loan and her full choice of loan programs once the loans converted to a permanent loan. To do so, Faille would, if necessary, refinance both of plaintiff's loans. On October 12, 2006, the construction loan and the line of credit closed. At the closing, no one explained the documents to plaintiff who was presented with two large stacks to sign (one for each loan). Plaintiff was not provided with copies of all the closing documents. In response to plaintiff's request for a copy of all loan application materials, Countrywide sent her a copy of the appraisal report.

Shortly after closing in October 2006, plaintiff began construction on her home. During the construction process, Countrywide erred in applying plaintiff's monthly payments. Instead of crediting the monthly payments she made to the interest accruing each month or to the interest reserve Countrywide had set up to cover interest payments made during the construction phase, Countrywide applied her payments to reduce the outstanding principal balance. This error had the effect of reducing by about $16,000 the amount that plaintiff had available to her from the construction loan, forcing her to draw down on the higher-interest line of credit sooner. Due to compound interest, plaintiff ultimately paid more interest on the construction loan because her initial payments to interest were directed to principal, leaving the unpaid interest to accumulate. Eventually, Countywide credited $15,000 back to the construction loan from the line of credit, but it did not compensate plaintiff for the additional interest she paid due to its mistake.

Construction on the house was completed in November or December 2007. As construction neared completion, Countrywide called plaintiff to offer her a choice of three permanent loan products, though none was at market rate (which Faille had promised plaintiff). Countrywide also informed plaintiff that it would only convert the first mortgage construction loan, leaving her to continue paying for the line of credit at 12.5% APR. Dissatisfied, plaintiff approached other lenders for a better loan and rate. Lenders ultimately denied her applications because, as plaintiff now learned, Countrywide and its agents had allegedly over-appraised the value of her newly constructed home by approximately $250,000. As a result, plaintiff had no choice but to accept a conversion on the loan Countrywide offered. Countrywide gave plaintiff an interest only, adjustable rate mortgage with a starting rate of 6.375%. From January to March 2008, plaintiff again attempted to refinance but could not gain approval due to Countrywide's inflated appraisal.

II. Analysis

A. Standard of Review

Rule 12(b)(6) permits a court to dismiss a claim where plaintiff fails to state a claim upon ...

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