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Krause v. GE Capital Mortgage Service, Inc., No. 1-99-2443

1st District, May 30, 2000

FIRST DIVISION

PRESIDING JUSTICE O'MARA FROSSARD delivered the opinion of the court:

Plaintiffs, Steven and Patricia Krause and Phillip and Tammy Lindberg, brought this three-count complaint againstdefendant, GE Capital Mortgage Services, Inc., involving the prepayment of mortgage loans that defendant was in charge ofservicing. Plaintiffs sought damages for breach of contract (count I), restitution (count II) and unfair and deceptive practicesunder the Illinois Consumer Fraud and Deceptive Business Practices Act 815 ILCS 505/1 et seq. (West 1998) (count III).Defendant moved for summary judgment on each count of the complaint and the trial court granted the motion. On appeal,plaintiffs argue that the trial court erred in granting summary judgment. We affirm.

BACKGROUND

Plaintiffs brought suit on behalf of themselves and those who were similarly situated. The plaintiffs alleged that theyfinanced the purchases of their homes through home mortgage loans and signed promissory notes and mortgages. Themortgages and notes prohibited any prepayment charges and contained the following language with respect to a prepaymentcharge, "I may make a full prepayment or partial prepayment without paying any prepayment charges." The notes andmortgages also listed other possible loan charges, but did not list any charges that were prohibited and did not mention feesfor obtaining account information on the amount the borrower owed on the loan. Eventually, defendant acquired plaintiffs'mortgages and assumed the responsibility for servicing each of the loans. As part of its responsibilities, defendant receivedborrowers' monthly payments, administered escrow amounts, and processed loan payments. Defendant also provided awritten account or payoff statement that informed the borrower the amount owed on the mortgage loan account.

Plaintiffs alleged that they entered into contracts to sell their homes and, to complete the real estate transactions, sought topayoff their mortgage loans in total before maturity. In order to fulfill this obligation, plaintiffs were required to obtainwritten payoff statements from defendant. Additionally, because of time constraints, plaintiffs requested the statements besent by facsimile. The payoff statements that the plaintiffs received listed not only the balance due on the mortgage loansbut also included a $15 quote fee and a $10 fax fee. The payoff statements further required full payment of the balance dueon the loan including the quote and fax fees. Plaintiffs alleged that they paid both the quote and fax fees to obtain therelease of the mortgages because they did not want to breach the contract with the buyers of their homes.

Plaintiffs attached their mortgages, notes, and payoff statements to their complaint. Plaintiffs alleged that the notes andmortgages only authorized specific fees and not a quote or fax fee. Plaintiffs alleged that both documents prohibited anyprepayment charges, which they contend the quote and fax fee constituted, and that neither the mortgages nor the notesspecifically listed these charges as necessary for defendant to release the loan and security instrument. Count I of plaintiffs'complaint alleged that defendant breached its contract with plaintiffs by imposing the fax and quote fees. Plaintiffs furtheralleged that they satisfied all of the terms and conditions of the mortgage contracts and that defendant's conduct in addingthe unauthorized fees to the payoff statements breached its covenant of good faith and fair dealing with plaintiffs. Count IIsought damages for restitution because, according to the complaint, the unauthorized fees conferred an inequitable benefiton defendant. Count III alleged that defendant engaged in unfair and deceptive practices in violation of section 2 of theIllinois Consumer Fraud and Deceptive Business Practices Act (Fraud Act) (815 ILCS 505/2 (West 1998)). The allegedunfair and deceptive practice was that defendant added "unauthorized and prohibited charges to their mortgage customers'final account balances when their customers prepared to pay off their mortgage loan, when such fees were prohibited bytheir customers' notes and mortgages."

Defendant moved for summary judgment on each count of the complaint, relying in part on the affidavit of Diane Graf, avice-president in defendant's customer service department. Defendant argued that the fees at issue were not prepaymentcharges but rather were charges authorized for the services defendant performed. Graf stated in her affidavit that defendantoften responds to inquiries from mortgagors requesting a payoff quotation of the balance due on the account. Besidesmortgagors making these requests when they decide to pay off their mortgage loans before maturity, mortgagors requestpayoff statements for overall financial planning, to update financial statements, for divorce or bankruptcies, and for generalinformational purposes.

Graf next stated that defendant did not charge for providing payoff quotes verbally, over the phone, or by mail. However,defendant charged a $10 service fee for sending the statement by facsimile. In addition, defendant charged in total a $15service or quote fee if more than one written payoff statement on an account was requested. The quote fee and fax fee arecharged to the borrower's account at the time the services are rendered, but are not paid until the time the loan is paid off.Graf stated that fax and quote fees are not necessary for prepayment of a loan because a loan could be and has been paid offwithout the borrower ordering a payoff statement or where the borrower only ordered one written payoff statement by mail.

Moreover, Graf discussed defendant's procedure for full disclosure of the fax and quote fees before a borrower or otherparty orders a payoff statement that incurs such fees. Defendant requires its customer service agents to disclose a quote orfax fee to any party requesting a payoff statement and to explain about the possibility of additional quote fees in the future.Defendant also operated an automated telephone system from which a borrower or representative can access and order apayoff statement. When a party orders a payoff statement, the automated system discloses that a faxed statement on a loan,similar to the plaintiffs' statements, costs $10. In addition, each payoff statement, as evidenced by plaintiffs' payoffstatements, states that "[t]here will be a $15.00 quote fee assessed for any additional quotes requested."

Graf additionally reviewed the computer and business records of plaintiffs' loans. On June 4, 1997, plaintiffs Steven andPatricia Krause or their attorney requested an initial payoff statement through the automated telephone system andrequested that the statement be sent via facsimile. The statement included a $10 fax fee and informed the recipient that aquote fee would be imposed for a second payoff statement. On July 17, 1997, a second payoff statement was requested onthe Krause loan and again was ordered through the automated telephone system. The statement included a second fax fee of$10. On July 29, 1997, the Krauses paid off their loan and paid all quote and fax fees, which consisted of the $15 quote feefor their request for a second payoff statement and total fee of $20 for the two faxed statements.

With respect to the Lindbergs' loan, on September 17, 1996, the Lindbergs ordered an initial payoff statement through theautomated telephone system and requested that it be sent by facsimile to an Arizona telephone number. The statementincluded a $10 fax fee. Phillip Lindberg testified at his deposition that he requested this payoff statement because he wasconsidering refinancing his loan although he later chose not to refinance. This deposition was attached to defendant'smotion. On June 23, 1997, a second payoff statement was ordered on the Lindbergs' account through the telephone system,but this time the caller requested that the statement be mailed. The statement included the earlier $10 fax fee, no cost formailing, and a $15 quote fee. Thereafter, in the next few months, the Lindbergs or a representative ordered three morepayoff statements and requested that two of the statements be faxed. By November 11, 1997, when the Lindbergs paid offtheir loan, the Lindbergs or a representative had requested in total five payoff statements and had received by request threeof the statements by facsimile. The Lindbergs paid the $15 quote fee imposed as a result of their request for multiple payoffstatement and the $30 fax fee for the three faxed statements, when they paid off their loan.

Defendant also attached to its motion the deposition transcripts of Gary and Stephen Newland, the attorneys responsible forhandling the sale of the Krause and Lindberg homes and the payoff of their loans. Both attorneys confirmed that they ormembers of their law firms had ordered payoff statements consistent with defendant's computer records. Gary Newlandtalked with Patricia Krause about the fax and quote fees on the payoff statement before the real estate closing and Krausequestioned the fees. Prior to the Lindbergs' closing, Stephen Newland had similar discussions with Phillip Lindberg aboutthe fax and quote fees, and Lindberg questioned the fees. Nevertheless, both the Krauses and Lindbergs paid the fees as partof their payoff of their mortgages in full.

In response to defendant's motion for summary judgment, plaintiffs did not contest that defendant disclosed the fax andquote fees prior to plaintiffs ordering the payoff statements at issue. Plaintiffs argued that there were general issues ofmaterial fact that the quote and fax fees were prepayment penalties, were not authorized by the mortgages or notes, andwere unfair practices under the Fraud Act.

Following oral arguments, the trial court granted defendant's motion for summary judgment on each count. The court firstconcluded that the fax and quote fees did not constitute prepayment charges and did not breach the contracts betweenplaintiffs and the defendant. The court found that the fees are not solely charged when a mortgagor attempts to pay his loanin full before maturity, but could be incurred independent of a prepayment. The court also rejected plaintiffs' argument thatthese fees were not proper under the mortgages and notes. The court found that the fees were permissible service fees thatarose from defendant's management of the mortgage. Regarding plaintiffs' claim of a violation of the Fraud Act, the courtfound that defendant disclosed the fees in advance, plaintiffs agreed to pay them, and defendant rendered a service for thefees. The court therefore failed to find any unfair or deceptive practices. The court also found that, under the voluntarypayment doctrine, plaintiffs' payment of the quote and fax fees barred their breach of contract claim. The court lastlyrejected plaintiffs' restitution claim because of the express contract between plaintiffs and defendant and the lack ofevidence of any unfair practices. Plaintiffs now appeal.

ANALYSIS

Summary judgment shall only be granted if the pleadings, depositions, and admissions, together with the affidavits showthat there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1998). While "the summary judgment procedure is to be encouraged as an aid in the expeditious dispositionof a lawsuit [citation], it is a drastic means of disposing of litigation and therefore should be allowed only when the right ofthe moving party is clear and free from doubt. [Citations.]" Purtill v. Hess, 111 Ill. 2d 229, 240, (1986). We review thecircuit court's grant of a motion for summary judgment de novo. Ruane v. Amore, 287 Ill. App. 3d 465, 473 (1997).

I. Quote and Fax Fees Were Not Prepayment Penalties

Plaintiffs first argue that the court erred in finding that quote and fax fees did not constitute unauthorized prepaymentpenalties. According to plaintiffs, these fees only arise in the context of a prepayment and these fees cannot be avoidedwhen a mortgagor pays his loan in full before maturity. A charge is a prepayment penalty if the "charge imposed at the timeof prepayment [was one] that would not [have been] imposed if the note were paid at maturity instead of at an earlier date."Goldman v. First Federal Savings & Loan Ass'n, 518 F.2d 1247, 1252 (7th Cir. 1975). Two cases have recently examinedwhether fax and quote fees, similar to the ones presented here, constitute prepayment charges under Goldman. SeeCappellini v. Mellon Mortgage Co., 991 F. Supp. 31 (D. Mass. 1997); Colangelo v. Norwest Mortgage, Inc., 598 N.W.2d14 (Minn. App. 1999). We find these cases instructive.

In Capellini, plaintiff claimed that a $15 fax fee and a $ 25 duplicate statement fee for a payoff statement should beclassified as a prepayment fee. Like the fees in this case, the fees in Capellini were not contained in the plaintiff's mortgageor note and were paid when plaintiff paid off the loan. Rejecting the plaintiff's argument that the fees constituted aprepayment penalty, the court found that the fees are not assessed only in the context of prepayment but are routinelyassessed in other circumstances unrelated to prepayment. Cappellini, 991 F. Supp. at 38. The court concluded that "fax andstatement fees are not prepayment charges, but are rather charges for special services outside of the basic service agreementprovided to the borrower by [the lender] with respect to-but not exclusively related to the prepayment of-a loan."Cappellini, 991 F. Supp. at 38.

The court, in Colangelo, reached the same conclusion with respect to a $10 fax charge. It found that the borrower is notrequired to pay the $10 fee as a condition of paying off the mortgage loan because the borrower does not even need toacquire a payoff statement to pay the loan in full and because the fee could be assessed outside the context of prepayment.Colangelo, 598 N.W.2d at 16-17. The court held the charge was a permissible fee for special services. Colangelo, 598N.W.2d at 17.

In this case, we likewise conclude that the fax and quote fees do not constitute prepayment charges. Graf's affidavitestablishes that the fax and quote fees can be charged for reasons other than prepayment. A borrower, for instance, mayrequest more than one payoff statement for financial purposes, for refinancing options, or for bankruptcy or divorce. Theborrower may choose to have one of these payoff statements sent by facsimile and thus incur both a quote and a fax feeeven though there is no prepayment of the loan. In addition, a borrower does not even need to obtain a payoff statement toprepay the mortgage loan or, on the other hand, may choose to prepay after requesting only one statement. "The fact that acost is imposed on the borrower at the time the loan is prepaid does not render the cost a penalty; a charge is a prepaymentpenalty if the cost 'would not be imposed if the note were paid at maturity instead of an earlier date.' " Colangelo, 598N.W.2d at 17, quoting Goldman, 518 F.2d at 1252. In this case, the record reflects that the fax and quote fees defendantcharged are not exclusively related to the prepayment of the loan but may be charged for a number of unrelated reasons.Here, these charges would be imposed whether the notes were paid at maturity or at an earlier date and therefore fail tosatisfy the definition of a prepayment penalty under Goldman. Goldman, 518 F.2d at 1252. Based on this record, there is nogenuine issue of material fact that the quote and fax fees are charged for a number of reasons unrelated to prepayment of theloan. We agree with the trial court's finding that the fees are service charges that are not peculiarly associated withprepaying a loan. As noted by the trial court: