Supreme Court mortgage fee ruling prompts swift dismissal in Madison County

By Steve Korris | Nov 2, 2005

Justice Thomas Kilbride

Attorney General Lisa Madigan

Plain as day, Illinois law says lenders cannot charge more than three percent in fees on mortgages with interest rates above eight percent.

Plain as day, Illinois law says they can.

The Illinois legislature passed these clashing laws seven years apart – the first in 1974, the second in 1981.

For 24 years, lenders argued that the second law repealed the first, but some judges ruled otherwise and enforced the three percent cap.

It won’t happen again. The Illinois Supreme Court, eager to straighten the record, ruled Sept. 22 that the 1981 legislature implicitly repealed the 1974 cap.

The Supreme Court reversed the Third District Court of Appeals in U.S. National Bank Association v. Clark, a Cook County case involving many borrowers and lenders.

Justice Thomas Kilbride wrote the Supreme Court’s decision.

Through Nov. 1, the Court had not released it for permanent publication. A copy at the Madison County law library warned that it was subject to revision or withdrawal.

Still, it packed enough punch for Madison County Circuit Judge George Moran. He relied on it in granting a motion to dismiss a defendant in a proposed class action suit.

Moran’s Oct. 26 order scratched Amaximis, a Texas limited partnership, from a long list of defendants that Mary Yarbrough sued in 2001.

Attorney Mark Bauman of Edwardsville had moved to dismiss Amaximis about two weeks earlier, based on the Clark decision.

Bauman’s motion was missing from the case file Nov. 1, as county workers continued catching up on a backlog of filing from their strike.

In the Cook County case, lenders foreclosed and borrowers answered with counterclaims accusing the lenders of loading excess fees on mortgages.

Cook County Circuit Judge Richard Siebel dismissed the counterclaims. The borrowers appealed.

The appeals judges identified a handy precedent – their own. In Fidelity Financial Services v. Hicks, the Third District had held that the legislature did not repeal the three percent cap.

In the Clark case, they stuck to that principle. They also relied on Davis v. City of Chicago, a 1974 case about continuation from the old state constitution to the new one.

The lenders appealed and the Supreme Court took the case. Kilbride wrote, “We are now availed of an opportunity to ‘end the guessing game’ on the issue of implicit repeal.”

The confusion started in 1980, when Congress allowed states to loosen regulations on interest rates so that a free market could determine the rates.

The Illinois legislature amended its interest law in 1981. The amendments removed limits from interest rates, but did not specifically repeal the three percent cap on fees.

Courts generally disfavor repeal by implication, Kilbride noted in his opinion, and must apply it only when they cannot reconcile the terms and operations of two laws.

“When two statutes cannot be harmonized, the subsequent statute will be deemed to have repealed the earlier by implication because Supreme Court cannot presume the legislature intentionally enacted contradictory laws," he wrote.

He scolded the Third Circuit for relying on its own precedent rather than a stronger federal precedent in Currie v. Diamond Mortgage Corp. of Illinois.

Kilbride wrote that the Third Circuit’s Hicks interpretation “requires us to read unsupported limitations into the statutory language and is overruled.”

The Hicks decision, he wrote, was at odds with the intent of the legislature to allow market forces to prevail.

As for Davis v. City of Chicago, he commented that it “was not directly on point.”

Kilbride also demolished arguments that Illinois Attorney General Lisa Madigan offered as an intervenor on behalf of Illinois citizens.

Madigan argued that interest law applies to first liens, and refinancing does not constitute a first lien. Kilbride wrote that cursory review revealed the error in that.

Madigan argued that treating a refinancing as a first lien does not further the intent of congress to promote home ownership. Kilbride rejected that as unsupported.

Along with Madigan’s arguments, the Supreme Court received a joint brief in support of the borrowers from the Woodstock Institute, the National Training and Information Center, Neighborhood Housing Services of Chicago, the South Austin Coalition, the South Suburban Housing Center and the Central Illinois Organizing Project.

The court received a joint brief in support of the lenders from the Illinois Mortgage Bankers Association and the Illinois Association of Mortgage Brokers, and another from the American Financial Services Association and the Consumer Mortgage Coalition.

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