U.S. Bank Nat. Ass'n v. Clark

Decision Date22 September 2005
Docket NumberNo. 98379.,98379.
Citation837 N.E.2d 74,216 Ill.2d 334
PartiesU.S. BANK NATIONAL ASSOCIATION et al., Appellants, v. Michael CLARK et al., Appellees (The State of Illinois, Intervening Appellee).
CourtIllinois Supreme Court

Samuel H. Levine, of Arnstein & Lehr, L.L.P., Chicago, for appellants U.S. Bank National Association and Aames Funding Corporation.

Dianne E. Rist, Joseph P. Lombardo, S. Todd Sipe, of Chapman & Cutler, L.L.P., Chicago, for appellant Bank of New York, as Trustee.

Jill D. Rein, of Pierce & Associates, P.C., Chicago, for appellant Bankers Trust Company.

Craig A. Varga, Joshua D. Davidson, of Varga, Berger, Ledsky, Hayes & Casey, and Joseph A. Spiegler, Lester G. Bovia, Jr., Amy L. Flaherty, of Winston & Strawn L.L.P., Chicago, and Steven F. Molo, of Shearman & Shearman, L.L.P., New York, New York, for appellant Bankers Trust Company, as Trustee.

Craig A. Varga, Joshua D. Davidson, of Varga, Berger, Ledsky, Hayes & Casey, Chicago, for appellant Eastern Savings Bank, FSB.

James V. Noonan, Mitchell A. Lieberman, of Noonan & Lieberman, Samuel H. Levine, of Arnstein & Lehr, Chicago, for appellant EquiCredit Corporation of America.

Alyssa M. Campbell, Steven J. Roeder, of Williams, Montgomery & John, Ltd., Chicago, for appellant IMC Mortgage Company.

Thomas R. Meites, Michael M. Mulder, Jamie S. Franklin, of Meites, Mulder, Burger & Mollica, Stephen Stern, Sharon K. Legenza, Dory M. Rand, John Bouman, Daniel P. Lindsey, James Brady, Chicago, for appellees.

Lisa Madigan, Attorney General, Springfield (Gary Feinerman, Solicitor General, Mary E. Welsh, Assistant Attorney General, Chicago, of counsel), for intervenor-appellee State of Illinois.

Jeffrey D. Warren, Danielle J. Szukala, of Burke, Warren, MacKay & Serritella, P.C., Chicago, for amici curiae Illinois Mortgage Bankers Association and Illinois Association of Mortgage Brokers.

Howard L. Teplinsky, of Ottenheimer, Teplinsky & Rosenbloom, L.L.C., Buffalo Grove (Thomas M. Hefferon, David L. Permut, of Goodwin Procter, L.L.P., and Joseph M. Kolar, of Buckley Kolar, L.L.P., Washington, D.C., of counsel), for amici curiae American Financial Services Association and Consumer Mortgage Coalition.

Steven Stern, Chicago, for amici curiae Woodstock Institute et al.

Justice KILBRIDE delivered the opinion of the court:

In this appeal, we consider whether the 3% limitation on lender charges for mortgages with interest rates of more than 8% found in section 4.1a of the Illinois Interest Act (815 ILCS 205/4.1a (West 2002)) is enforceable or is preempted by a prohibition on such caps in the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C. § 1735f-7a (2000)). In separate foreclosure actions brought by the plaintiff creditors, the defendant homeowners filed counterclaims and affirmative defenses that included allegations the creditors had violated the Illinois Interest Act (815 ILCS 205/0.01 et seq. (West 2002)). The circuit court of Cook County dismissed the homeowners' counterclaims and affirmative defenses, but the appellate court reversed and remanded the cause for further proceedings. This court allowed the creditors' joint petition for leave to appeal. We now reverse the judgment of the appellate court.

I. BACKGROUND

In separate actions, the creditors filed for foreclosure against a number of homeowners who were behind in their home mortgage payments. The homeowners each filed counterclaims and affirmative defenses that included an allegation that the creditors had violated the Illinois Interest Act (Act) by imposing fees in excess of 3% on loans with interest rates of greater than 8% (815 ILCS 205/4.1a(f) (West 2002)). The circuit court of Cook County dismissed those counterclaims, ruling the Interest Act claims were preempted by the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) (12 U.S.C. § 1735f-7a (2000)), and, in some cases, by the federal Alternative Mortgage Transaction Parity Act of 1982 (Parity Act) (12 U.S.C. § 3803(c) (2000)). The cases were later consolidated, and the homeowners filed an interlocutory appeal.

The appellate court reversed and remanded, relying in part on its prior decision in Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 158 Ill.Dec. 221, 574 N.E.2d 15 (1991). 348 Ill.App.3d 856, 283 Ill.Dec. 268, 807 N.E.2d 1109. In Hicks, the court considered the interaction between the Interest Act and DIDMCA and, specifically, whether section 4.1a of the Act is preempted by section 501 of DIDMCA. The Hicks court concluded the loan at issue did not fall within the scope of DIDMCA because the "loan was not a purchase-money mortgage" and it was not clear whether the trust deed underlying the loan constituted a "first lien." Hicks, 214 Ill.App.3d at 406, 158 Ill.Dec. 221, 574 N.E.2d 15. In addition, the Hicks court held that the 3% limit in section 4.1a of the Act was not implicitly repealed when the legislature amended section 4, thus permitting any rate or amount of interest or compensation for loans secured by a real estate mortgage. Hicks, 214 Ill.App.3d at 404, 158 Ill.Dec. 221, 574 N.E.2d 15. The appellate court here declined to follow conflicting federal authority in Currie v. Diamond Mortgage Corp. of Illinois, 859 F.2d 1538 (7th Cir.1988), holding that section 501 of DIDMCA preempted section 4.1a. The appellate court reasoned that it was not bound to follow federal precedent, but it was obliged to give deferential weight to Hicks. 348 Ill.App.3d at 863-64, 283 Ill.Dec. 268, 807 N.E.2d 1109.

In addition, the appellate court chose not to address the creditors' argument that Hicks was wrongly decided, finding that dispositive changes had occurred since the issuance of that decision. 348 Ill.App.3d at 864, 283 Ill.Dec. 268, 807 N.E.2d 1109. The appellate court noted that after Hicks was decided in 1991, the legislature enacted Public Act 87-496 to amend section 4.1a of the Act. After factually distinguishing the contrary decisions in Village of Park Forest v. Wojciechowski, 29 Ill.2d 435, 438, 194 N.E.2d 346 (1963), and City of Chicago v. Gordon, 146 Ill.App.3d 898, 901, 100 Ill.Dec. 464, 497 N.E.2d 442 (1986), the court deemed Davis v. City of Chicago, 59 Ill.2d 439, 322 N.E.2d 29 (1974), instructive, although it was not directly on point. 348 Ill.App.3d at 865-66, 283 Ill.Dec. 268, 807 N.E.2d 1109. The appellate court noted that DIDMCA specifically allowed states to adopt subsequent limitations on discount points and overcome the preemption provision. In light of this "opt-out" provision, the court concluded the changes to section 4.1a, while not directly altering the relevant portion of the Interest Act, could be seen as an attempt to resolve the conflict between Currie and Hicks. 348 Ill.App.3d at 866-67, 283 Ill.Dec. 268, 807 N.E.2d 1109. Thus, the court concluded the "reenactment" of section 4.1a satisfied the override provision in section 501(b)(4) of DIDMCA and the homeowners' Interest Act claims were improperly dismissed as preempted by DIDMCA. 348 Ill.App.3d at 870, 283 Ill.Dec. 268, 807 N.E.2d 1109.

Finally, the appellate court rejected the creditors' argument that provisions in the Parity Act governing "alternative mortgage transactions" preempted some of the homeowners' claims, as well as another issue not before this court. 348 Ill.App.3d at 873, 875, 283 Ill.Dec. 268, 807 N.E.2d 1109. We granted the creditors leave to appeal (see 177 Ill.2d R. 315(a)), and the State of Illinois intervened as an appellee (see 735 ILCS 5/2-408 (West 2004)). We also allowed several entities supporting either the creditors1 or the homeowners2 leave to file amicus curiae briefs. See 155 Ill.2d R. 345.

II. ANALYSIS
A. DIDMCA

In 1980, Congress passed DIDMCA "to ease the severity of the mortgage credit crunches * * * and to provide financial institutions, particularly those with large mortgage portfolios, with the ability to offer higher interest rates on savings deposits." S.Rep. No. 96-368, at 18 (1979), reprinted in 1980 U.S.C.C.A.N. 236, 254. As Congress observed,

"[i]n addition to the adverse effects of usury ceilings on credit availability, mortgage rate ceilings must be removed if savings and loan institutions * * * are to begin to pay market rates of interest on savings deposits. Without enhancing the ability of institutions to achieve market rates on both sides of their balance sheets, the stability and continued viability of our nation's financial system would not be assured. Thus, Federal preemption of State usury ceilings would not only promote national home financing objectives but would provide the resources with which savers could be paid more interest on their savings accounts." S.Rep. No. 96-368, at 19 (1979), reprinted in 1980 U.S.C.C.A.N. 236, 255.

With that underlying intent, Congress enacted section 501 of DIDMCA, stating:

"(a) Applicability to loan, mortgage, credit sale, or advance; applicability to deposit, account, or obligation

(1) 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 which is—

(A) secured by a first lien on residential real property, * * *;

(B) made after March 31, 1980; and

(C) described in section 527(b) of the National Housing Act (12 U.S.C. 1735f-5(b)), * * *

* * *

(b) Applicability to loan, mortgage, credit sale, or advance made in any State after April 1, 1980 * * *

(2) Except as provided in paragraph (3), the provisions of subsection (a)(1) of this section shall not apply to any loan, mortgage, credit sale, or advance made in any State after the date (on or after April 1, 1980, and before April 1, 1983) on which such State adopts a law or certifies that the voters of such State have voted in favor of any provision,...

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