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Melinda Smith v. United Residential Services & Real Estate

July 25, 2011


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


In her Second Amended Complaint, plaintiff Melinda Smith ("Smith") asserts counts against Urban Financial Group, Inc. ("Urban") on behalf of herself and a putative statewide class under the Illinois Consumer Fraud Act, 815 ILCS 505/2 (Count II); the Illinois Fairness in Lending Act, 815 ILCS 120/3 (Count III); the Civil Rights Act, 42 U.S.C. § 1981 (Count IV); the Fair Housing Act ("FHA"), 42 U.S.C. §§ 3601-3619 (Count V); and the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. §§ 1691-1691f (Count VI). Plaintiff also seeks to have her mortgage loan rescinded under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601, et seq. (Count I). Urban has moved to dismiss all the claims brought against it. For the following reasons, Urban's motion is granted in part and denied in part.


Plaintiff Melinda Smith, who is African-American, is an 85- year old widow on a fixed income who lives in a house she owns in Chicago. Her home is located in the predominantly African-American community of Austin/West Garfield. In or about June 2009, plaintiff was solicited for a reverse mortgage loan by Darren Crawford, who worked for Bernard Mortgage Corporation ("Bernard"). Crawford ultimately arranged for plaintiff to enter into a reverse mortgage loan with defendant lender, Urban. Plaintiff alleges that she did not understand the terms of the reverse mortgage loan and she only received copies of her closing documents weeks after the closing. Plaintiff alleges that Bernard and Urban originated a reverse mortgage loan with unfavorable terms. In addition, Urban paid Bernard $1,272.62 to Bernard in the form of a yield spread premium ("YSP"). The YSP was paid for the purpose of increasing the interest rate on Urban's loan beyond the "par" rate that she qualified for. The lender's payment of a YSP and the broker's consequent imposition of a higher interest rate are unrelated to the applicant's qualifications or credit risk.

In this case, plaintiff alleges that Urban's conduct was racially discriminatory in intent and/or effect. Further, she claims it had a discriminatory impact because Urban's policy imposes or authorizes mark-ups in interest rates on loans to minority borrowers more frequently and in greater amounts, on average, than it does on loans to its Caucasian borrowers.


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.'" EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Fed. R. Civ. P. 8(a)(2)). The facts*fn1 must provide the defendant with "'fair notice of what the . . . claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). The plaintiff need not plead particularized facts, but the factual allegations in the complaint must be enough to raise a right to relief above the speculative level. Id.


"Agency is a fiduciary relationship in which the agent has the power to act on the principal's behalf." Sphere Drake Ins. Ltd. v. Am. Gen. Life Ins. Co. 376 F.3d 664, 672 (7th Cir. 2004). The test for agency is "whether the alleged principal has the right to control the manner and method in which work is carried out by the alleged agent and whether the alleged agent can affect the legal relationships of the principal." Chemtool, Inc. v. Lubrication Techs., 148 F.3d 742, 745 (7th Cir. 1998). "In the broker-lender context, if the evidence indicates that 'the broker had a close relationship or far more authority than that of simply bringing the borrower and lender together,' then the Court 'may deem the broker to be an agent of the lender.'" Whitley v. Taylor Bean & Whitacker Mortgage Corp., 607 F. Supp. 2d 885, 895 (N.D. Ill. 2009) (quoting Taylor Bean & Whitacker Mortgage Co. v. Cebulak, No. 03 C 7425, 2004 WL 2106605, at *12 (N.D. Ill. Sept. 20, 2004)).

Urban argues that Counts II through VI should be dismissed because plaintiff cannot show that Bernard was Urban's agent. Specifically, Urban asserts that agency is foreclosed by the "Reverse Mortgage Correspondent Agreement," a written agreement*fn2 between Bernard and Urban which states that the relationship between Urban and Bernard is "an independent contractor relationship." Urban Mem. at Ex. G. This agreement also states that Bernard may not represent to anyone that Bernard "is acting as an agent for or on behalf of Urban." Id. Further, Urban asserts that "[n]othing implicates Urban." Urban Mem. at 10.

Given the allegations presented and the fact that the issue of agency is best decided at the summary judgment stage, see Hill v. Shell Oil Co., 78 F. Supp. 2d 764, 769 (N.D. Ill. 1999), I do not conclude that the Reverse Mortgage Correspondent Agreement is dispositive as a matter of law on the question of agency. See Letsos v. Century 21-New West Realty, 675 N.E. 2d 217, 224 (Ill. App. Ct. 1996) (noting that a factfinder could conclude party was acting as an agent despite language in contract that he was an "independent contractor"). In support of her theory of agency, plaintiff alleges that Bernard arranged a significant number of loans for Urban. She alleges that Bernard utilized Urban's credit granting policies, rate sheets, and loan software to process many loans. Plaintiff further alleges that Urban controlled the ultimate terms of financing by means of the control it exercised over Bernard's compensation: the higher the interest rate and loan principal, the greater the amount of compensation paid to it by Urban. These allegations indicate that the relationship between Urban and Bernard was more involved than simply bringing a borrower together with a lender. I find these allegations are sufficient at this stage.*fn3 See Taylor, 2004 WL 2106605, at *12 (noting that presence or absence of an agency relationship is a question of fact best resolved at summary judgment).

Count I: Truth In Lending Act

Plaintiff alleges in Count I that Urban: (1) failed to timely provide a "final TILA Disclosure Statement"; (2) failed to timely provide plaintiff with federal Notice of Right to Cancel forms, which violated TILA's requirement that the forms "clearly and conspicuously" disclose the final date to cancel; (3) only provided estimated disclosures on the final TILA Disclosure Statements; and (4) failed to deliver the special disclosures required by TILA for reverse mortgages. SAC ¶¶ 106-10.

Urban argues that plaintiff's first and second bases should be dismissed because plaintiff signed an "acknowledgment of receipt," in which she acknowledged receipt of the final TILA Disclosure Statement and the federal Notice of Right to Cancel forms. See Urban Ex. C.*fn4 Plaintiff responds that a signed acknowledgment by the consumer "does no more than create a rebuttable presumption of delivery," see 15 U.S.C. ยง 1635(c). Here, plaintiff alleges in the ...

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