Stern v. Norwest Mortg., Inc.

• Decision Date: 23 October 1997
• Docket Number: Nos. 82412,82512,s. 82412
• Citation: 688 N.E.2d 99,227 Ill.Dec. 762,179 Ill.2d 160
• Parties: , 227 Ill.Dec. 762 Stephen STERN et al., Appellants and Cross-Appellees, v. NORWEST MORTGAGE, INC., Appellee and Cross-Appellant.
• Court: Illinois Supreme Court

Page 99

688 N.E.2d 99

179 Ill.2d 160, 227 Ill.Dec. 762

Stephen STERN et al., Appellants and Cross-Appellees, v. NORWEST MORTGAGE, INC., Appellee and Cross-Appellant.

Nos. 82412, 82512.

Supreme Court of Illinois.

Oct. 23, 1997.

Rehearing Denied Dec. 3, 1997.

Daniel A. Edelman, Edelman & Combs, Chicago, for Stephen Stern in No. 82412.

Peter C. Woodford, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, for Norwest Mortgage, Inc. in Nos. 82412 and 82512.

John A. Morrissey, Assistant Attorney General, Chicago, for other party in No. 82412.

Daniel A. Edelman, Edelman & Combs, Chicago, for Stephen Stern, Catherine Harth in No. 82512.

Justice MILLER delivered the opinion of the court:

Stephen Stern and his wife, Catherine Harth (plaintiffs), filed a class action in the circuit court of Cook County against Norwest Mortgage, Inc. (defendant). Plaintiffs claimed that defendant violated the Mortgage Escrow Account Act (Escrow Act) (765 ILCS 910/1 et seq. (West 1992)) and the Consumer Fraud and Deceptive Business Practices Act (Fraud Act) (815 ILCS 505/2 (West 1992)). The circuit court granted defendant's section 2-615 motion to dismiss (735 ILCS 5/2-615 (West 1992)), finding that the Escrow Act did not prevent defendant from charging an "escrow waiver fee." On appeal, the appellate court reversed and remanded as to defendant's right to impose an escrow waiver fee. 284 Ill.App.3d 506, 510-12, 219 Ill.Dec. 788, 672 N.E.2d 296. The panel, however, affirmed as to plaintiffs' failure to state a cause of action under the Fraud Act. 284 Ill.App.3d at 512-13, 219 Ill.Dec. 788, 672 N.E.2d 296. Both parties filed petitions for leave to appeal. We granted leave to appeal on both petitions (155 Ill.2d R. 315), consolidated the cases and now affirm the decision of the appellate court.

I. BACKGROUND

In July 1992, plaintiffs obtained a mortgage loan from defendant in order to purchase a house in Chicago. Under the Escrow Act, plaintiffs had the option of pledging an interest-bearing time deposit with the mortgage lender in lieu of the lender's establishing an escrow account in order to cover the payment of anticipated taxes. Defendant informed plaintiffs that they would be assessed an "escrow waiver fee" equal to 0.25% of the principal amount of the loan if they chose to pledge an interest bearing time deposit. This amount equalled $492.50. Plaintiffs exercised this option and pledged a certificate of deposit with defendant because it was less costly than maintaining an escrow account.

In June 1993, plaintiffs brought a class action against defendant alleging that defendant violated the Escrow Act (765 ILCS 910/1 et seq. (West 1992)) and the Fraud Act (815 ILCS 505/2 (West 1992)). The Escrow Act provides in relevant part: "In lieu of the mortgage lender establishing an escrow account or an escrow-like arrangement, a borrower may pledge an interest bearing time deposit with the mortgage lender in an amount sufficient to secure the payment of anticipated taxes." 765 ILCS 910/6 (West 1992). Plaintiffs claimed that defendant's practice of charging an escrow waiver fee when a borrower elected to pledge an interest-bearing time deposit violated section 6 of the Escrow Act. Further, plaintiffs claimed defendant misrepresented the provisions of the Escrow Act in violation of the Fraud Act (815 ILCS 505/2 (West 1992)).

Claiming that plaintiffs failed to state a claim upon which relief could be granted, defendant filed a section 2-615 motion to dismiss. On April 6, 1995, the trial court granted defendant's motion to dismiss. Plaintiffs appealed.

On appeal, the appellate court affirmed in part and reversed and remanded in part. 284 Ill.App.3d at 513, 219 Ill.Dec. 788, 672 N.E.2d 296. First, the court reversed the trial court by finding that charging a fee for the waiver of an escrow account is contrary to the plain language and purpose of the Escrow Act. 284 Ill.App.3d at 510, 219 Ill.Dec. 788, 672 N.E.2d 296. The court also rejected defendant's arguments that the Escrow Act, as construed by the plaintiffs, was preempted by federal law and unconstitutionally vague. 284 Ill.App.3d at 510-12, 219 Ill.Dec. 788, 672 N.E.2d 296. Second, the appellate court affirmed the trial court's decision that the plaintiffs failed to state a cause of action under the Fraud Act. 284 Ill.App.3d at 512-13, 219 Ill.Dec. 788, 672 N.E.2d 296.

II. ANALYSIS

We begin our analysis with the Escrow Act. In construing the Escrow Act, we must ascertain and give effect to the intent of the legislature. Varelis v. Northwestern Memorial Hospital, 167 Ill.2d 449, 454, 212 Ill.Dec. 652, 657 N.E.2d 997 (1995). When possible, the intention of the legislature should be determined from the language of the statute. Nottage v. Jeka, 172 Ill.2d 386, 392, 217 Ill.Dec. 298, 667 N.E.2d 91 (1996). Besides examining the language of an act, a court should look to the evil that the legislature sought to remedy or the object it sought to attain in enacting the legislation. Castaneda v. Illinois Human Rights Comm'n, 132 Ill.2d 304, 318, 138 Ill.Dec. 270, 547 N.E.2d 437 (1989). In the present case, we must determine whether the Escrow Act, in light of the purpose for which the legislature passed the Act, prohibits the imposition of an escrow waiver fee when a borrower elects to pledge an interest-bearing time deposit in lieu of establishing an escrow account for the payment of anticipated taxes.

As stated above, section 6 states: "In lieu of the mortgage lender establishing an escrow account or an escrow-like arrangement, a borrower may pledge an interest-bearing time deposit with the mortgage lender in an amount sufficient to secure the payment of anticipated taxes." 765 ILCS 910/6 (West 1992). The plain language of section 6 clearly provides a borrower with a right to choose between two options. The borrower may elect to pledge an interest-bearing time deposit to cover payment of future anticipated taxes. If the borrower does not elect this option, the mortgage lender can establish an escrow account to cover these payments. There is no provision in section 6 of the Escrow Act which allows for substitution of a third option or conditions to be placed on whichever of the two options the borrower elects.

Before passage of the Escrow Act, most standard mortgage loans required the borrower to make monthly deposits into an escrow account to cover future taxes and other anticipated expenditures. Lenders were under no obligation to pay the borrower interest on the funds in the escrow account; thus, lenders received the benefit of the funds deposited by the borrower in the escrow account. In passing the Escrow Act, the legislature sought to give borrowers the benefit of their early payments of taxes by allowing them to pledge interest-bearing time deposits as opposed to having lenders establish escrow accounts.

The legislature clearly wanted the borrower to have the right to pledge an interest-bearing time deposit instead of establishing an escrow account. If a mortgage lender is allowed to charge an escrow waiver fee when a borrower exercises that right, the lender would be able to effectively take away a right given the borrower by the legislature. We do not believe that the legislature would have provided a benefit to borrowers only to give the lender a means to reduce or eliminate this benefit. It is evident that the legislature intended for borrowers electing to pledge an interest-bearing time deposit to retain the proceeds from that deposit. It is also evident that the legislature intended to provide only two options to secure the payment of anticipated taxes. We believe that a lender cannot charge an escrow waiver fee when the borrower pledges an interest-bearing time deposit because such a fee is inconsistent with the language of the statute and the legislative intent to provide a benefit to the borrower.

Having determined that the Escrow Act does not allow defendant to charge an escrow waiver fee should plaintiff elect to pledge an interest-bearing time deposit, we must next determine whether that portion of section 6 prohibiting escrow waiver fees is preempted by federal law.

The supremacy clause of the United States Constitution states that "the Laws of the United States * * * shall be the supreme Law of the Land; * * * any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const., art. VI, cl. 2. Congress' purpose " 'is the ultimate touchstone' of pre-emption analysis." Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 2617, 120 L.Ed.2d 407, 422 (1992), quoting Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 1190, 55 L.Ed.2d 443, 450 (1978). "Congress' intent to preempt State law may be manifested 'by express provision, by implication, or by a conflict between federal and state law.' " Busch v. Graphic Color Corp., 169 Ill.2d 325, 335, 214 Ill.Dec. 831, 662 N.E.2d 397 (1996), quoting New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645, 654, 115 S.Ct. 1671, 1676, 131 L.Ed.2d 695, 704 (1995).

When reading the Escrow Act to include a prohibition against escrow waiver fees, defendant claims that the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) (12 U.S.C. § 1735f-7a (1994)) preempts the Escrow Act. DIDMCA states in relevant part: "The provisions of the constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved shall not apply to any loan, mortgage, credit sale, or advance" made after March 31, 1980, and secured by a first lien on residential real property. 12 U.S.C. § 1735f-7a(a)(1) (1994).

We must initially determine whether the Escrow Act's prohibition of an escrow waiver fee falls under the purview of DIDMCA. In the present case, defendant charged plaintiffs a ...