implementing Federal Reserve Board Regulation Z, 12 C.F.R. § 226. Plaintiffs allege that
EquiCredit violated TILA by: (1) failing to provide them with disclosures required for “high cost”
mortgages in violation of 15 U.S.C. §§ 1639(a)(1), (a)(2)(A), and (b)(1); (2) engaging in a pattern
and practice of extending credit for “high cost” mortgages based on a consumer’s collateral, without
regard to the consumer’s repayment ability in violation of 15 U.S.C. § 1639(h); and (3) failing to
take any action necessary to terminate its security interest after Plaintiffs’ notice of rescission in
violation of 15 U.S.C. § 1635(b). (R. 33, Compl.)

Allof Plaintiffs’ federal claims fail because Plaintiffs cannot establish that EquiCredit issued
them a “high-cost” mortgage loan as defined by HOEPA. A HOEPA loan is a mortgage loan secured
by a consumer’s principal dwelling, other than a loan made to finance the dwelling’s original
construction or acquisition, in which the loan’s annual percentage rate of interest exceeds ten
percent, or the “total points and fees” payable by the consumer at or before the closing exceeds the
greater of eight percent of the total loan amount or $400. 15 U.S.C. § 1602(aa)(1)(A) & (B). A
lender that makes such a “high-cost” mortgage loan is required to provide several specific
disclosures not less than three business days before the transaction is consummated. 15 U.S.C. §
1639(a) & (b).

In its motion for summary judgment, EquiCredit admits that it did not provide HOEPA
disclosures, but argues that it was not required to do so because Plaintiffs’ mortgage loan was not
a “high cost” loan. (R. 52, EQ Mem. at 5.) On its face, the Points and Fees Compliance Worksheet
attached to Plaintiffs’ loan states that the total “points and fees” payable by Plaintiffs was 7.97
percent of the total loan amount—just below the eight percent threshold provided for by §

1602(aa)(1)(B){i) of HOEPA. (R. 33, Compl., Ex. I.) Plaintiffs contend, however, that the mortgage


CONCLUSION
In view of the foregoing, the Court grants EquiCredit’s motion for summary judgment with
prejudice as to Plaintiffs’ federal TILA claims (Counts IV and V), denies The Loan Center’s motion
for summary judgment without prejudice, and remands the remaining state law claims to the Circuit
Court of Cook County. The parties are strongly encouraged to revisit settlement possibilities for this

delayed lawsuit before proceeding in state court.

ENTERED:

eA

Ruben Castillo
United States District Judge

Dated: March 31, 2006


to The Loan Center. (/d. { 34.)

Plaintiffs sold their home in April of 2003. (/d. § 37.) In connection with the sale of the
home, EquiCredit’s mortgage was released in exchange for a short sale payoff in the amount of
$100,534.10. (dd. | 38.)

LEGAL STANDARD

Summary judgment is appropriate where “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, show 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.”
Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving
party has produced evidence to show that it is entitled to summary judgment, the party seeking to
avoid such judgment must affirmatively demonstrate that a genuine issue of material fact remains
for trial. See LINC Fin. Corp. v. Onwuteaka, 129 F.3d 917, 920 (7th Cir. 1997). The nonmovant
may not rest upon mere allegations, but “must set forth specific facts showing that there is a genuine
issue for trial.” Fed. R. Civ. P. 56(e); see also LINC, 129 F.3d at 920. In deciding a motion for
summary judgment, a court must review the record in the light most favorable to the nonmoving
party and draw all reasonable inferences in that party’s favor. Anderson v. Liberty Lobby, Inc.,477
U.S. 242, 255 (1986).

ANALYSIS
I. Federal Claims

Out of the thirteen claims brought by Plaintiffs in this case, only two of them arise under

federal law: the Truth In Lending Act (“TILA”), 15 U.S.C. § 1601 e# seq., as amended by the Home

Ownership and Equity Protection Act of 1994 (“HOEPA”), 15 U.S.C. §§ 1602(aa) & 1639, and its


loan was a “high cost” loan because the $10,500.00 payment to D & E constituted a kickback or
disguised broker’s fee to The Loan Center. (R. 74, Pls.’ Resp. at 4-6.) Plaintiffs’ argument is a non-
starter, however, because they admit that neither D & E nor Moore remitted to The Loan Center any
portion of the $10,500.00 payment that was disbursed to D & E in connection with EquiCredit’s
mortgage loan to Plaintiffs. (R. 78, Pls.’ Resp. to EQ’s LR56.1(a)(3) St. 34.)

Alternatively, Plaintiffs contend for the first time that the $10,500.00 payment to Moore
(doing business as D & E) must be considered a part of the total compensation paid to Plaintiffs’
mortgage brokers. (R. 74, Pls.’ Resp. at 5-7.) Under TILA, in determining whether the total “points
and fees” exceed the eight percent threshold, “all compensation paid to mortgage brokers” is
counted. 12 C.F.R. § 226.32(b)(1)(ii). Plaintiffs, however, “may not amend [their] complaint
through arguments in [their] brief in opposition to a motion for summary judgment.” Shanahan v.
City of Chi., 82 F.3d 776, 781 (7th Cir. 1996). Thus, this argument fails.

However, even assuming arguendo that Plaintiffs’ newly asserted theory was properly pled
in their complaint, Plaintiffs’ claim fails because Moore is not a mortgage broker. Therefore, the
$10,500 payment was not a broker’s fee. Moore worked for The Loan Center in the capacity of a
loan officer, and he has never been an officer, director or shareholder of The Loan Center. (R. 56,
LC LR56.1(a)(3) St. §§ 18-19.) The Loan Center does not own, operate or have any affiliation with
D&E. (R. 53, EQ LR56.1(a)(3) St. J 31.)

Finally, Plaintiffs contend that even if D & E Services was paid $10,500.00 as a third-party
creditor instead of as a mortgage broker, this payment would be equivalent to a “hidden finance
charge” which must be included in the HOEPA calculation for a high-cost mortgage. (R. 74, Pls.”

Resp. at 8.) However, in order for this payment to be a “hidden finance charge,” EquiCredit must


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

ELIZABETH CUNNINGHAM and
ESTATE OF LOUISE CUNNINGHAM,

Plaintiffs,
Case No. 02 C 4810
Vv.
Judge Ruben Castillo
EQUICREDIT CORPORATION OF
ILLINOIS, THE LOAN CENTER, INC.,
and MARVIN HUNTER,

Defendants,

we we ver ververve ere Ye

MEMORANDUM OPINION AND ORDER

Plaintiffs, Elizabeth Cunningham and the Estate of Louise Cunningham, sued EquiCredit
Corporation of Illinois (““EquiCredit”),' The Loan Center, Inc., and Marvin Hunter in the Circuit
Court of Cook County, alleging that each of the defendants committed various violations of state law
and that EquiCredit committed two violations of federal law. Defendant EquiCredit removed the
case to federal court on the basis of federal question jurisdiction. (R. 1, Notice of Removal.)
EquiCredit and The Loan Center have each filed motions for summary judgment on Plaintiffs’
Second Amended Complaint. (R. 50, EquiCredit (“EQ”) Mot. for Summ. J.; R. 64, The Loan Center
(“LC”) Mot. for Summ. J.) For the reasons set forth below, the Court grants EquiCredit’s motion
for summary judgment as to Plaintiffs’ TILA claims (Counts IV and V), and remands Plaintiffs’

remaining claims to state court.

'Nationscredit Financial Services Corporation is EquiCredit’s successor by merger.


have retained a portion of the $10,500.00 payment disbursed to D & E. See, e.g., Walker v. Wallace
Auto Sales, Inc., 155 F.3d 927, 932 (7th Cir. 1998). As explained above, Plaintiffs admit that
EquiCredit retained no portion of the $10,500.00. As each of Plaintiffs’ arguments attempting to
show EquiCredit gave them a high-cost mortgage loan fails, Plaintiffs cannot prevail on their federal
TILA claims.
Il. State Law Claims

Having dismissed the only federal claims in this lawsuit, the Court declines to exercise
supplemental jurisdiction over Plaintiffs’ state law claims. See 28 U.S.C. § 1367(c)(3) (a district
court may decline to exercise supplemental jurisdiction over a claim if “the district court has
dismissed all claims over which it has original jurisdiction.”) Because this case was removed from
state court, the Court remands the remaining state law claims to the Circuit Court of Cook County.
See also Key Outdoor Inc. v. City of Galesburg, Ill., 327 F.3d 549, 550 (7th Cir. 2003) (“Since this
case was removed from state court, if all the federal claims supporting jurisdiction are dismissed and
jurisdiction over the remaining state law claims is not retained, the appropriate procedure would be

to remand the remaining state law claims to the Circuit Court of Cook County.”)


RELEVANT UNDISPUTED FACTS

Elizabeth Cunningham and her mother, Louise, owned and lived at a home located at 2315
South Central Park in Chicago, Illinois. (R. 53, EQ LR56.1(a)(3) St. 1.’ Louise lived there from
1984 until she passed away in 1999, and Elizabeth moved out of the home in 2003. (/d. | 1-2.)

In February 1999, Plaintiffs’ home was in a state of disrepair, and they sought funds to make
home repairs and improvements. (/d. 47.) Marvin Hunter, a home improvement repair contractor,
referred Elizabeth Cunningham to The Loan Center, a mortgage broker. Elizabeth entered into a
loan brokerage agreement with The Loan Center on February 23, 1999. (/d. § 8.) At The Loan
Center, Elizabeth Cunningham met with employee Derwin Moore to fill out a Uniform Residential
Loan Application. (/d. § 13.) Moore told her that in order to qualify for a loan, Elizabeth would
have to show that she had a job. (/d. § 14.)

In her loan application, Elizabeth Cunningham falsely stated that: (1) she had been working
at M & M Cleaning Services since 1997; (2) her income from the job was $1,800 per month; (3) she
earned $675 per month by renting the first floor of her property; and (4) she and her mother both
graduated from high school. (/d. {9 15-16.)° Elizabeth signed the loan application on behalf of
herself and Louise. (/d. § 17.) In April 1999, The Loan Center submitted the Cunninghams’ loan

application, along with false documents purporting to verify the information in the loan application,

2All citations to EquiCredit’s Local Rule 56.1 statement of facts are undisputed by
Plaintiffs unless otherwise indicated.

°The parties disagree about whether Elizabeth knew what she was representing and
whether Moore influenced or convinced her to lie on her application. (R. 76, Pls.”
LR56.1(b)(3)(B) St. § 26.)


to EquiCredit, an Illinois corporation engaged in the business of mortgage lending. (/d. J 3)
EquiCredit approved Plaintiffs’ loan application. (/d. 4 19.) Plaintiffs subsequently received a
mortgage loan in the amount of $95,200.00. (R. 65, LC LR56.1(a)(3) at 31.)

Plaintiffs and EquiCredit entered into a mortgage loan secured by Plaintiffs’ property on May
27, 1999. EquiCredit provided Plaintiffs with Truth In Lending Act disclosures, but did not provide
Plaintiffs with special loan disclosures required for “high cost” mortgage loans. (R. 53, EQ
LR56.1(a)(3) St. fF 21-23.) At the closing, Plaintiffs also received a HUD-I settlement statement.
(Ud. §§ 24, 26, 28.) The settlement statement showed that the $95,200.00 mortgage loan would be
used to pay off Plaintiffs’ existing mortgage, make substantial repairs to their home and pay an
existing overdue water bill. (R. 33, Second Am. Compl. (“Compl.”), Pls.’ Exs. L, M.) The loan
proceeds were also used to pay a $6,350.00 broker’s fee to The Loan Center and a $10,500.00 fee
to D & E Services, which was represented in the settlement statement as a third party creditor. (dd.
28, 33; LC LR56.1(a)(3) St. §] 32-33.) Derwin Moore is the principal of D & E Services, but D &
E Services has no connection with The Loan Center. (/d. {fj 32-33.)

On June 2, 1999, EquiCredit disbursed the settlement proceeds to Plaintiffs and the $10,500
fee to D & E Services,° and Plaintiffs paid The Loan Center its broker’s fee of $6,350. (R. 53, EQ

LR56.1(a)(3) St. § 27.) Neither D & E Services nor Moore remitted any portion of the $10,500 fee

‘The parties disagree as to who falsified the attached documents, Moore or Elizabeth.
The documents included 1997 and 1998 W-2 forms, two pay stubs, and a completed Request for
Verification of Employment form. (R. 33, Second Am. Compl. (“Compl.”), Pls.’ Exs. C-F.)

SThe loan amount was based on the appraised value of Plaintiffs’ home after the expected
improvements were made. (R. 56, LC LR56.1(a)(3) St. at § 30.)

°The parties dispute whether D & E Services was a third-party creditor of Plaintiffs.

3