Moore v. Lomas Mortg. USA, 90 C 5816.

• Decision Date: 18 May 1992
• Docket Number: No. 90 C 5816.,90 C 5816.
• Citation: 796 F. Supp. 300
• Parties: Henry MOORE, Leola Moore, Joseph Washington and Dorothy Washington, Plaintiffs, v. LOMAS MORTGAGE USA, Defendant. LOMAS MORTGAGE USA, INC., Counterplaintiff, v. Joseph WASHINGTON and Dorothy Washington, Counterdefendants.
• Court: U.S. District Court — Northern District of Illinois

796 F. Supp. 300

Henry MOORE, Leola Moore, Joseph Washington and Dorothy Washington, Plaintiffs, v. LOMAS MORTGAGE USA, Defendant.

LOMAS MORTGAGE USA, INC., Counterplaintiff, v. Joseph WASHINGTON and Dorothy Washington, Counterdefendants.

No. 90 C 5816.

United States District Court, N.D. Illinois, E.D.

May 18, 1992.

Daniel A. Edelman, Cathleen M. Combs, Francine Schwartz and Tara G. Redmond, Law Offices of Daniel Edelman and Lawrence Walner, Lawrence Walner & Assoc. Ltd., Chicago, Ill., for plaintiffs.

James R. Daly, Suzanne S. Greene and Robert C. Micheletto, Jones, Day, Reavis & Pogue, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

ZAGEL, District Judge.

This cause is rooted in a class action suit brought against Lomas Mortgage USA, Inc. (counterplaintiffs here), a mortgage service company. Plaintiffs (counterdefendants here) hold mortgages that are owned or serviced by Lomas.¹ The mortgages require class members to deposit 1/12 of annual taxes and insurance in a non-interest bearing escrow account each month. In their complaint plaintiffs allege that Lomas requires the class members to deposit escrow accounts in excess of the amount required by their mortgages, thereby obtaining the use of large amounts of money to which Lomas is not entitled.

Lomas has filed a class action counterclaim. The counterclaim seeks a declaration (1) that Lomas is entitled to impose a 4% late charge for delinquent payments on federally guaranteed mortgage loans calculated on the entire past due amount, including principal, interest, taxes and insurance; and (2) that imposing late charges does not violate the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev. Stat. ch. 121½, para. 262 (the "Illinois Consumer Fraud Act"). The Washingtons and the class members contest Lomas' entitlement to assess late charges on delinquent payments of principal and interest and taxes and insurance. They contend that late charges should be assessed only on delinquent monthly payments of principal and interest.

This case is presently before the Court on Lomas' motion for summary judgment on its counterclaim. For the following reasons Lomas' motion is granted.

I. UNDISPUTED FACTS

The Washingtons have a fixed-rate mortgage and note written on standard printed forms issued by the Department of Veterans Affairs ("VA"). The VA guaranteed the mortgage. Lomas, or its predecessor, the Lomas & Nettleton Company, has serviced the Washingtons' mortgage since at least 1980. The mortgage provides that Lomas may assess a late charge of no more than 4% for delinquent mortgage payments. Lomas computes late charges on delinquent payments calculated on the aggregate past due amount for principal, interest, taxes and insurance ("PITI") under VA-guaranteed mortgages.

The "whereas" clause at the beginning of the mortgage states:

That whereas the Mortgagor is justly indebted to the Mortgagee, as is evidenced by a certain promissory note executed and delivered by the Mortgagor, in favor of the Mortgagee ... in the principal sum of Twenty One Thousand Four Hundred and 00/000 Dollars ($21,400.00) payable with interest at the rate of Eight and 50/100 per centum (8.50) per annum on the unpaid balance until paid, and made payable to the order of the Mortgagor ... the said principal and interest being payable in monthly installments of One Hundred Sixty-Five and 21/100 Dollars ($165.21) ...²

As to the language in the mortgage authorizing the assessment of late charges, the mortgage provides:

Together with, and in addition to the monthly payments of principal and interest payable under the terms of the note secured hereby, the Mortgagor will pay to the Mortgagee as Trustee ... the following sums:

(a) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other hazard insurance covering the mortgaged property, plus taxes and assessments next due on the mortgaged property ... less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, taxes and assessments will become delinquent, such sums to be held by Mortgagee in trust to pay said ground rents, premiums, taxes and assessments.

(b) The aggregate of the amounts payable pursuant to subparagraph (a) and those payable on the note secured hereby shall be paid in a single payment each month ...

Any deficiency in the amount of any such aggregate monthly payment shall, unless made good prior to the due date of the next payment, constitute an event of default under this Mortgage. At Mortgagee's option, Mortgagor will pay a "late charge" not exceeding four per centum (4%) of any installment when paid more than fifteen (15) days after the due date thereof to cover the extra expense involved in handling delinquent payments, but such "late charge" shall not be payable out of the proceeds of any sale made to satisfy the indebtedness secured hereby ...

II. DISCUSSION³

A. Interpretation Of Mortgage Contract

1. The Mortgage Contract

This dispute centers around the meaning of the term "installment," as it is used in the Washingtons' mortgage and note. Plaintiffs assert that the loan documents define the word "installment" as the amount of principal and interest only. They observe that in both the mortgage and note, the first use of "installment" is in reference to the monthly payment of principal and interest. In contrast, plaintiffs continue, the sum of principal, interest, taxes and insurance, or PITI, is referred to in the mortgage as the "aggregate monthly payment." Plaintiffs conclude, therefore, that since "installment" appears initially in reference to the monthly principal and interest payment — $165.21 — the reference to 4% of any installment in the late charge provision means 4% of $165.21, not 4% of the aggregate monthly payment.

Lomas rejects plaintiffs' suggestion that the first usage of the term "installment" in the mortgage contract and note defines the term's meaning throughout the mortgage. Noting that there is no definition section in the mortgage or note, Lomas contends that "installment" must be understood by reference to the context in which it appears and any modifying language accompanying the term. For example, in the context of the "whereas" clause, the term "installment" defines the method of payment (monthly) and amount of principal and interest payments ($165.21). But in the late charge provision, installment is not modified by reference to payment of principal and interest. Rather, Lomas argues, the term's meaning is defined in the late charge clause by the discussion of deficiencies in the amount of "aggregate monthly payments," or PITI.

To resolve this dispute, the Court looks first to the contract itself. "If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over." LaSalle Nat'l Bank v. Service Merchandise Co., 827 F.2d 74, 78 (7th Cir.1987). If, on the other hand, the Court determines that the contract is ambiguous, the Court may employ rules of construction to determine the parties' intention. In re Estate of Chaitlin, 179 Ill. App.3d 287, 291 (1st Dist.1989). In addition, the Court may consider extrinsic evidence to interpret an ambiguous contract. See La Throp v. Bell Federal Savings & Loan Assoc., 68 Ill.2d 375, 383, 12 Ill.Dec. 565, 370 N.E.2d 188 (1977), cert. denied, 436 U.S. 925, 98 S.Ct. 2818, 56 L.Ed.2d 768 (1978); City of Clinton v. Moffit, 812 F.2d 341, 344 (7th Cir.1987). An ambiguous contract's interpretation "is still an issue of law rather than one of fact if any extrinsic evidence ... bearing on that interpretation is undisputed." City of Clinton, 812 F.2d at 344. Thus, even when a contract is ambiguous, a case can be decided on summary judgment if no material facts are in dispute. LaSalle Nat'l Bank v. General Mills Restaurant Group, Inc., 854 F.2d 1050, 1052 (7th Cir.1988); City of Clinton, 812 F.2d at 344.

The meaning of the term "installment" in the late charge clause of the Washingtons' mortgage contract is ambiguous. The parties' respective arguments demonstrate that, when the contract is construed as a whole, the late charge provision is "reasonably and fairly susceptible to more than one meaning." Lenzi v. Morkin, 116 Ill. App.3d 1014, 1016, 72 Ill.Dec. 414, 452 N.E.2d 667 (1st Dist.1983), aff'd, 103 Ill.2d 290, 82 Ill.Dec. 644, 469 N.E.2d 178 (1984).⁴ Therefore, the Court will look to the uncontroverted extrinsic evidence and applicable rules of contract construction to determine the meaning of the ambiguous late charge clause.

2. Extrinsic Evidence

The Washingtons' mortgage is guaranteed by the VA pursuant to 38 U.S.C. § 1810. The mortgage contract specifically incorporates Title 38 and the regulations promulgated thereunder. The mortgage provides:

If the indebtedness secured hereby be guaranteed or insured under Title 38, United States Code, such Title and Regulations issued thereunder and in effect on the date hereof shall govern the rights, duties and liabilities of the parties hereto, and any provisions of this or other instruments executed in connection with said indebtedness which are inconsistent with said Title or Regulations are hereby amended to conform thereto.

One such regulation, § 36.4311(d) of the Code of Federal Regulations, authorizes lenders to assess late charges on VA mortgages.⁵ But, like the Washingtons' mortgage contract, § 36.4311(d) does not specifically define the term "installment." Thus, reference to the applicable federal regulations fails to elucidate the meaning of "installment," as it is used in the late charge clause of plaintiffs' mortgage contract.

To bolster its interpretation of "installment," Lomas has presented several VA Solicitor opinion letters and a VA manual outlining loan guaranty policies and procedures. Like Lomas, the VA Solicitor opinion letters and the manual construe...