Opinion ID: 2095287
Heading Depth: 2
Heading Rank: 4

Heading: Applicability of DIDMCA Preemption

Text: The intervenor State of Illinois argues the creditors did not meet their burden of overcoming the presumption against preemption in this case by establishing that the term first lien as used in section 501 of the Act includes refinancing mortgages as well as purchase-money mortgages. The State initially contends that when DIDMCA was enacted in 1980, a `first mortgage' generally was viewed as one obtained to purchase a home, while a mortgage for which accumulated equity served as security (a so-called `home equity loan') was called a `second mortgage,' regardless of priority of position. (Emphasis in original.) A cursory review of the authority cited for this proposition reveals the error in the State's argument. In its citation, the State notes parenthetically that the cited article declares: `[t]raditional home equity loans are sometimes called second mortgages, although legally they may involve a first lien. ' (Emphasis added.) See G. Canner, C. Luckett & T. Durkin, Home Equity Lending, 75 Fed. Res. Bull. 333, 344 n. 2 (May 1989). Thus, the cited article expressly recognizes that refinanced mortgage loans may constitute first liens, the term used to define loans and mortgages that fall within the scope of section 501 of DIDMCA. See 12 U.S.C. § 1735f-7a(1)(A) (2000) (stating (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 (emphasis added)). Next, the State cites the Michigan Court of Appeals' decision in Mitchell v. Trustees of United States Mutual Real Estate Investment Trust, 144 Mich.App. 302, 375 N.W.2d 424 (1985), in support of its contention that the inclusion in section 501 of refinanced mortgage loans as first liens does not further Congress' intent to promote home purchases. In its brief, the State asserts that one of Congress' purposes in enacting DIDMCA recognized by the Mitchell court was stimulation of the home-buying market. While that is true, Congress also expressed another purpose: 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. This purpose is consistent with the incorporation of refinancing mortgage loans in the ambit of section 501. We reject the State's argument to the contrary as unsupported. Under the plain meaning of the term first lien, both purchase-money and refinancing mortgages meeting the statutory requirements are covered by section 501. See Black's Law Dictionary 942 (8th ed.2004) (defining first lien as [a] lien that takes priority over all other charges or encumbrances on the same property and that must be satisfied before other charges may share in proceeds from the property's sale). The great weight of federal authority also coincides with this view. See Brown v. Investors Mortgage Co., 121 F.3d 472, 475 (9th Cir.1997) (stating the statutory language that state usury restrictions, `shall not apply to any loan    secured by a first lien.' (emphasis in original), quoting 12 U.S.C. § 1735f-7a(a)(1) (1994)); Gora v. Banc One Financial Services Inc., No. 95 C 2542, 1995 WL 613131 (N.D.Ill. October 17, 1995) (mem. op.) (finding section 501 applies to nonpurchase money loans); In re L.G.H. Enterprises, Inc. 146 B.R. 612 (Bankr.E.D.N.Y. 1992) (holding section 501 applies to both purchase money and refinancing mortgages); Smith v. Fidelity Consumer Discount Co., 898 F.2d 907, 911-13 (3d Cir.1989), aff'd in part, rev'd in part on other grounds, 898 F.2d 896 (3d Cir.1990) (concluding that DIDMCA applies to all first mortgages, not just purchase money mortgages); In re Lawson Square, Inc., 61 B.R. 145 (Bankr.W.D.Ark.1986) (rejecting the argument that section 501 did not apply to nonpurchase money loans). As we have explained, [i]n construing    Federal statutes, we must look to the Federal decisions for its interpretation. Boyer v. Atchison, Topeka & Santa Fe Ry. Co., 38 Ill.2d 31, 34, 230 N.E.2d 173 (1967). Therefore, based on our own interpretation of the relevant statutory language as well as by the weight of guiding federal authority, we conclude section 501 covers the nonpurchase money first lien mortgages at issue in this appeal.