Find Legal Information

FOURTH DIVISION
June 16, 2005

No. 1-04-1809

JUSTICE THEIS delivered the opinion of the court:

Plaintiff Robert L. Sklodowski brought this lawsuit as a class action against defendant Countrywide Home Loans, Inc., an Illinois corporation (Countrywide), alleging breach of a mortgage note, breach of fiduciary duty, and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2000)) (the Consumer Fraud Act). The trial court granted Countrywide's motion to dismiss the breach of fiduciary duty and Consumer Fraud Act counts and, later, granted Countrywide summary judgment on the breach of contract count. Plaintiff now appeals from the dismissals of all three counts, arguing (1) Countrywide breached the mortgage note, which provided that Countrywide "promptly" refund plaintiff's escrow monies by delaying refunds for 14 days; (2) Countrywide's adoption of the 14-day delay policy constituted consumer fraud; and (3) Countrywide breached a fiduciary duty to plaintiff by not paying him interest on his escrow funds during the 14-day period. For the following reasons, we affirm.

In his amended complaint,⁽¹⁾ plaintiff alleged that on November 21, 1995, he entered into a 15-year conventional jumbo home loan for his personal residence with Covenant Mortgage Corporation. The mortgage attached to the complaint indicates that plaintiff entered into the mortgage with Centerbank Mortgage Company on January 18, 1996. This mortgage was written on an eight-page form with most pages labeled "ILLINOIS-Single Family-Fannie Mae/Freddie Mac UNIFORM INSTRUMENT." The mortgage required the borrower to pay the lender a sum, referred to as "Funds," for "Escrow Items," such as taxes and insurance, each month. The borrower could waive this requirement in writing. The lender would hold the funds and apply them to pay the escrow items. The funds were also pledged as additional security for all sums secured by the mortgage. The mortgage also specifically provided: "Upon payment in full of all sums secured by this Security Instrument, Lender shall promptly refund to Borrower any Funds held by Lender." This loan was later transferred to Countrywide. In the fall of 2000, plaintiff decided to repay his mortgage. On November 15, 2000, he received an "Amended Payoff Demand Statement," which indicated that his escrow account balance was $2,343.50. In that statement, Countrywide advised plaintiff that: "Countrywide automatically processes escrow refunds 14 days after payoff in order to ensure all outstanding funds have cleared." Plaintiff alleged that he received his refund in 20 days because Countrywide sent the check to his former address.

Plaintiff filed this action in March 2001. In his amended complaint, he included a breach of contract count, citing the above-quoted language that Countrywide must "promptly refund" his escrow funds. He alleged that Countrywide breached this provision by holding his escrow funds for 14 days after he repaid the mortgage, which was not a "prompt" refund. He also alleged a breach of fiduciary duty claim, stating that Countrywide held his escrow funds as a fiduciary for the 14-day period and breached its fiduciary duty to pay interest on these funds for those 14 days. In count III, plaintiff alleged that Countrywide violated the Consumer Fraud Act by engaging in an unfair deceptive act or practice by failing to "promptly" return plaintiff's escrow funds and by failing to earn interest on the funds during the 14-day period. Lastly, count IV alleged that Countrywide was unjustly enriched by holding the escrow funds for 14 days after repayment and by not paying plaintiff interest.⁽²⁾

Countrywide then filed a motion to dismiss under section 2-615 of the Illinois Code of Civil Procedure (735 ILCS 5/2-615 (West 2002)) (the Code)) contending that the amended complaint failed to state a cause of action under any of the four counts. The trial court granted Countrywide's motion to dismiss in part and dismissed counts II (breach of fiduciary duty), III (Consumer Fraud Act violation), and IV (unjust enrichment) with prejudice, but denied the motion as to count I, the breach of contract count.

Plaintiff then filed a motion for class certification and a motion for summary judgment on the breach of contract count. In his motion for summary judgment, plaintiff argued that Countrywide breached its mortgage agreement because its 14-day policy of refunding escrow funds was not "prompt" and contended that Countrywide had no justification for such a long delay. Plaintiff attached the deposition of Lynne Hiskett, vice-president of the payoff and demands department at Countrywide. She testified that Countrywide's policy was to refund escrow funds in 14 days, with certain exceptions. To her knowledge, Countrywide did not purchase mortgages that were not on Freddie Mac or Fannie Mae documents. All escrow refund checks were mailed the fourteenth day after repayment of the loan. She also stated that Countrywide deposited each borrower's escrow funds into a non-interest-bearing account. Plaintiff testified in his deposition that he sold his condominium, which secured the loan at issue in this case, in December 2000. The escrow refund check was mailed to his former address and then forwarded to his new address so he received it after 20 days.

Countrywide then filed a cross-motion for summary judgment, contending that its 14-day refund policy complied with the mortgage contract's requirement to "promptly" refund escrow funds. Countrywide attached the Federal Housing Administration Loan Servicing Guidelines. In section 5-2, entitled "Prepayment-in-Full," subsection G provided, "Escrow Balance Returned to Mortgagor. When the mortgage insurance is terminated without payment of a claim for insurance benefits (i.e., payment-in-full), the remaining funds held in escrow for the payment of taxes and hazard insurance shall be released to the mortgagor promptly (i.e., no later than 30 calendar days after the payoff)." Countrywide also attached Fannie Mae's Servicing Guide for Single Family Residential Mortgages, which, in section VI, 105, entitled "Escrow Refunds," provides in relevant part that "The funds in any escrow deposit account should be refunded to the mortgagor within 30 days of the payoff date." The trial court denied plaintiff's motion for summary judgment and granted Countrywide's cross-motion for summary judgment, entering judgment in favor of Countrywide on the breach of contract count. Plaintiff then filed this timely appeal.

We first address plaintiff's argument that the trial court erred in granting summary judgment to Countrywide on his breach of contract count. "Summary judgment is proper where, when viewed in the light most favorable to the nonmoving party, the pleadings, depositions, admissions, and affidavits on file reveal that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2002)." Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill. 2d 307, 315, 821 N.E.2d 269, 275 (2004). Where the parties file cross-motions for summary judgment, they agree that no material issue of fact exists and that only a question of law is involved. Legion Insurance Co. v. Empire Fire & Marine Insurance Co., 354 Ill. App. 3d 699, 703, 822 N.E.2d 1, 4 (2004). Our standard of review is de novo. Home Insurance Co., 213 Ill. 2d at 315, 821 N.E.2d at 275.

The issue here is one of first impression in this state: as a matter of law, does Countrywide's policy of refunding escrow account balances 14 days after payoff of the loan comply with the mortgage contract's requirement to "promptly refund" these monies upon repayment? We find that based on this Fannie Mae mortgage agreement and the facts of this case, Countrywide's policy does comply with this provision.

In construing a contract, the cardinal rule is to give effect to the intention of the parties, which is discerned from the plain and ordinary meaning of the language used in the contract. Mountbatten Surety Co. v. Szabo Contracting, Inc., 349 Ill. App. 3d 857, 868, 812 N.E.2d 90, 100 (2004). While we recognize that the term "promptly" may have different meanings in different contexts, here, we must interpret this word within the context of the mortgage industry.

Based on this principle, we must reject all of the cases cited by plaintiff because none of them concern the use of the word "promptly" in the mortgage industry. In support of his argument that Countrywide did not "promptly refund" plaintiff's escrow funds, plaintiff first cites Amella v. United States, 732 F.2d 711 (9th Cir. 1984), which is not applicable for many reasons. First, it is a federal case construing an admiralty statute. The cause of action arose when the plaintiffs attempted to sue the federal government for negligence after their fishing vessel sank while being towed by the United States Coast Guard. Amella, 732 F.2d at 712. The court was required to interpret the term "forthwith" in a federal jurisdictional statute determining when a "libelant" must serve a copy of his "libel" on the United States Attorney in this admiralty case. Clearly, this case offers no insight here where we must construe the term "promptly" in Illinois in the context of a mortgage document.

Next, plaintiff relies on City of New York v. McAllister Brothers, Inc., 278 F.2d 708 (2nd Cir. 1960), which is equally unavailing. This case involved an attempt by McAllister to implead the United States in a suit by the City of New York to recover for damages to the Brooklyn Bridge allegedly caused by McAllister's negligence in towing a floating derrick up the river without lowering the boom sufficiently to clear the bridge. McAllister Brothers, Inc., 278 F.2d at 709. As in Amella, the McAllister Brothers, Inc. court also interpreted the definition of "forthwith" in the same admiralty statute governing service of process of a libel against the federal government. Again, this case is not precedential, not persuasive, and not applicable here. Additionally, plaintiff's citation to Dickerman v. Northern Trust Co., 176 U.S. 181, 193, 44 L. Ed. 423, 431, 20 S. Ct. 311, 315 (1900), for the definition of "forthwith" is also irrelevant to our interpretation of the word "promptly."

Lastly, plaintiff cites to Lithflux Mineral & Chemical Works v. W. H. & F. Jordan, Jr., 217 Ill. App. 64 (1920). First, this case is not binding on this court and has no precedential value as it was decided prior to 1935. Basham v. Hunt, 332 Ill. App. 3d 980, 992 n.3, 773 N.E.2d 1213, 1224 n.3 (2002). This case involved the interpretation of the term "prompt shipment" in a shipping contract entered into in 1918. The conflicting evidence presented at the bench trial concerned the custom in the shipping industry as to what constituted "prompt shipment" and the impact of the "great world war" on the shipping time line. On appellate review, this court reviewed the trial court's decision that "prompt shipment" meant two to three days under the deferential manifest weight of the evidence standard. The appellate court concluded that the conflict in the testimony concerning the meaning of that term was best resolved by the trial court, which judged the credibility of the witnesses. This case is distinguishable from the present case and offers no guidance to this court in interpreting the term "promptly" in a mortgage agreement de novo. Therefore, plaintiff offers no support for his position that Countrywide did not "promptly refund" his escrow monies by issuing a check 14 days after repayment of the loan.

Countrywide, on the other hand, provides us with several relevant authorities in support of its position that its 14-day refund policy fully complies with the mortgage provision at issue here. It is undisputed that this mortgage was written on standard forms promulgated by Fannie Mae, a mortgage company which buys mortgages. Countrywide attached Fannie Mae's Servicing Guide for Single Family Residential Mortgages to its motion for summary judgment. Section VI, 105 of that guide, entitled "Escrow Refunds," provides in relevant part: "The funds in any escrow deposit account should be refunded to the mortgagor within 30 days of the payoff date." These guidelines interpret Fannie Mae's mortgage documents and advise the lenders, including Countrywide, to return escrow funds within 30 days. These guidelines concern the exact issue in this case, when a lender must promptly refund escrow monies, and interpret the same mortgage contract at issue here. Therefore, although these guidelines are not binding on this court, we find them particularly instructive in our interpretation of a term in a Fannie Mae mortgage contract. Additionally, plaintiff has not challenged these guidelines or presented any persuasive argument for why this court should not use the Fannie Mae guidelines to interpret a Fannie Mae mortgage contract. Under the Fannie Mae Servicing Guide, then, Countrywide's policy of refunding escrow funds 14 days after repayment of the loan fully complies with the mortgage's provision requiring Countrywide to "promptly refund" these monies.

Additionally, Countrywide cites several other authorities in support of its position. First, several states have enacted statutes providing that a lender holding a residential mortgage shall return any remaining monies in an escrow account within 30 days after the mortgage is fully paid. See, e.g., 21 Pa. Cons. Stat.