Mcwhorter v. Ford Consumer Finance Co., Inc.
| Decision Date | 04 September 1997 |
| Docket Number | No. CIV. A. 1:96-CV-0572-JOF.,CIV. A. 1:96-CV-0572-JOF. |
| Citation | 33 F.Supp.2d 1059 |
| Parties | Margaret McWHORTER, Plaintiff, v. FORD CONSUMER FINANCE COMPANY, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
William J. Brennan, Jr., Karen Elizabeth Brown, Atlanta Legal Aid Society, Decatur, Joseph H. King, Jr., Atlanta, GA, for Plaintiff.
Mary Grace Diehl, Amy Stutz Lettes, Troutman Sanders, Gary E. Massafra, Atlanta, GA, for Defendants.
This matter is before the court on Plaintiff's motion for summary judgment [25-1] and Defendant Ford's motion for summary judgment [27-1].
In her complaint, Plaintiff alleges that Defendant Ford Consumer Finance Co., Inc., and Defendant B & H Credit Services, Inc., violated the Federal Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601, et seq. (1974), and its implementing regulations, Regulation X, 24 C.F.R. § 3500.1, et seq. Plaintiff also brings state law claims against Defendant B & H for breach of fiduciary duty and fraud and state law claims against Defendant Ford for international interference with a contractual relationship, fraud, and unjust enrichment.
Plaintiff Margaret McWhorter is a 64-year-old widow who owns and resides at her home in Atlanta, Georgia. Defendant Ford Consumer Finance Co., Inc. ("Ford"), is a New York corporation in the business of making residential mortgage loans. Defendant Ford regularly transacts business in the state of Georgia. Ida Michelle Ward ("Ward"), formerly known as Ida Michelle Herbert, was a licensed mortgage broker during all times relevant to this case, doing business as B & H Credit Services, Inc. ("B & H"). As a mortgage broker, she conducted business as a referral mortgage broker and provided real estate settlement services. A mortgage broker who performs such services is referred to in the industry as a "referral broker" or a "retail broker."
Much of Defendant Ford's mortgage lending, such as the loan made to Plaintiff, is in what is known as the "sub-prime," "nonconforming," or "B/C" credit market. In this market, Ford provides credit to individuals who have a higher credit risk due to past credit problems such as bankruptcies, foreclosures, late payments, and judgments. Although Ford maintains a "direct sales office" in Dallas, Texas, it does not maintain retail or branch operations in Atlanta, Georgia, where borrowers may come in and apply for loans. Defendant Ford instead makes loans in Georgia through a network of approved independent mortgage brokers.
In Georgia, at the time relevant to this action, Defendant Ford had two broker programs, Program I and Program II, that were available to all brokers who did business with it. Brokers had to elect participation in one of the programs for an extended period of time and could not change on a loan-by-loan basis. Brokers who chose to participate in Program I received no fee from Defendant Ford, but they were free to contract with their customers, the borrowers, for a broker free and receive whatever compensation they agreed to directly from them out of the loan proceeds. Brokers who participated in Program II were paid a sum equal to 4% of the net loan amount from Ford and were also able to contract with their customers (the borrowers) for a broker fee. The 4% fee paid by Ford to Program II brokers was POC (paid outside closing) and did not come out of any loan proceeds received by the borrower. Furthermore, the 4% rate was non-negotiable or adjustable.
Interest rates on the loans given to customers of Program I brokers were uniformly one percentage point less than interest rates charged to Program II broker customers in the same credit class. Otherwise, the loan rates within each Program were determined by the borrowers' credit classifications, which took into account their credit history and financial situation. If a Program II loan went for its full term, the one percentage point of higher interest charged to Program II loans over corresponding Program I loans was equivalent to the 4% fee that Defendant Ford paid to brokers and therefore reimbursed Ford for that fee. This 4% fee was paid to Program II brokers only if the loan was closed. It was not paid to the broker if the loan did not close or if it was later canceled within three days of closing.
Defendant Ford maintained the two programs in Georgia in order to include the full spectrum of brokers in its lending operations. At all times relevant to this action, Defendant Ford employed account executives whose job it was to call mortgage brokers throughout the state soliciting Ford's products and services in an attempt to have the brokers refer loan applications to Ford for approval and funding. These executives worked with a network of mortgage brokers. Michael Armstrong was the exclusive Ford executive who dealt with B & H. In order to solicit business, Armstrong visited brokers as often as 100-120 times a month, four to five times a day. As part of his job, he informed brokers, including Ward, of Ford's products, services and Programs. He also gave copies of Defendant's rate sheets to the brokers. B & H chose to be a Program II broker. In fact, a majority of brokers elected to participate in Program II.
On August 3, 1994 Defendants Ford and B & H entered into an agreement. From January 1, 1995 to July 31, 1996 B & H received fees in connection with approximately 35 loans funded by Ford. Defendant Ford requires mortgage brokers to submit to it a copy of the written agreement that the broker has with the prospective borrower. As part of its broker's file, Defendant Ford already had a copy of B & H's form agreement entitled "Agreement for Financial Service," which provides that B & H will serve as the borrower's agent. Defendant Ford required that a copy of this written agreement be provided to Plaintiff. B & H provided this form, the same that was already in Ford's files, to Ford. Effuah Chisholm, loan processor at Ford, received the document but did not read it.
In early 1995 in response to an advertisement, Plaintiff contacted B & H to arrange for a loan to pay off her personal debt. At B & H, she met Ward. On February 3, 1995, Plaintiff entered into a written agreement with B & H. Pursuant to the agreement, B & H was to provide mortgage broker services in connection with obtaining a loan for Plaintiff, and Plaintiff agreed to pay to B & H a 4% commission out of the proceeds of the loan. (See Plaintiff's Motion for Summary Judgment, Exhibit 8, Agreement for Financial Services).
Ward told Plaintiff that she would help her to get a loan and would try to find the best one that she could. She also counseled Plaintiff on her loan options. However, Ward did not inform Plaintiff that she was a Program II broker when dealing with Ford, that Ford also had Program I brokers, or that Program II loan interest rates were one percentage point higher than corresponding loan rates offered under Program I.
Plaintiff provided to Ward information and paperwork relevant to her mortgage loan application. Plaintiff's application reflected certain credit problems, including a judgment lien on her home from an unpaid automobile loan and back property taxes. Her income was also limited to Social Security benefits, a small pension, and earnings from part-time employment at a day care center. After receiving information from Plaintiff, Defendant B & H verified Plaintiff's employment and current income, obtained a credit report and payoff information for the first mortgage and back property taxes, and arranged an appraisal of the property. Defendant B & H also arranged for a closing attorney, was present at the closing, and prepared a good faith estimate for Plaintiff. Defendant B & H then submitted the loan package to Defendant Ford.
Ford's loan processor, Effuah Chisholm, reviewed the loan application and supporting documentation, verified some information, and submitted the materials to Ford's main office in Dallas, Texas. B & H later provided some additional documentation to Ford at Ford's request. Defendant Ford initially denied Plaintiff's loan application, but after an appeal by the regional office, the loan was eventually approved. The final loan provided Plaintiff with lower payments than her monthly mortgage payments had been.
On February 3, 1996, B & H prepared a document entitled Good Faith Estimate. This document included, in part, the following information:
801. Loan Origination Fee 4 pts + $150 ............................... $1150
Misc. Yield spread premium (if known) P.O.C. .......................... $____
(Plaintiff's Motion for Summary Judgment, Exhibit 11, Good Faith Estimate). The document did not disclose that B & H would receive from Defendant Ford or any other lender any fee, kickback or other value. The document stated that "... no lender had been obtained ..." and that "[a] lender will provide you with an additional Good Faith Estimate within three business days of the receipt of your loan application." (Id.).
On February 6, 1995 Defendant Ford prepared a document entitled "Good Faith Estimate of Settlement Costs" and sent it by facsimile to B & H. That document included, in part, the following information:
808 BROKER FEE PAID BY BORROWER
OUT OF LOAN PROCEEDS $1,350.00
813 BROKER FEE PAID BY FCF OUTSIDE OF
CLOSING TO B & H CREDIT SERVICES
FOR OUTSIDE SERVICES RENDERED $1,350.00 p.o.c
(Plaintiff's Motion for Summary Judgment, Exhibit 13, Good Faith Estimate of Settlement Costs).
On March 6, 1995 Defendant Ford closed its loan to Plaintiff. At the closing, Plaintiff executed loan documents, including a note and a deed to secure debt. The principal amount of the loan was $30,594.69, with an interest rate of 15.35% and a twelve-month...
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