Opinion
No. 01 C 1175.
July 6, 2005
FINDINGS OF FACT AND CONCLUSIONS OF LAW
Alvin Chow, although he holds an M.B.A. degree from Northwestern University, was an unsophisticated purchaser of real estate. He met a broker named Gene Kapustka who turned out to be a crook. In 1999, Mr. Chow, who owned a condominium, decided to purchase a house. Mr. Kapustka told him he could "lock in" an interest rate in return for the payment of $2,000.00. Mr. Chow made this payment, and subsequent payments totaling $9,046.25, without obtaining his objective. He signed a contract for a house in January, 2000. Shortly before that time, Mr. Kapustka joined a brokerage firm called Future Bankers. The last two payments to Mr. Kapustka, which together totaled $3,618.75, were made on January 14 and February 22, 2000.
On January 20, 2000, Mr. Chow signed a loan application for a mortgage loan in order to purchase the house he had contracted to buy. The application was filled in by Mr. Kapustka, on behalf of Future Bankers. On the same day, Mr. Chow executed a brokerage agreement with Future Bankers, giving Future Bankers sixty days to obtain a mortgage loan for Mr. Chow. Mr. Chow also signed a document stating that he would be required to obtain private mortgage insurance. For some reason neither Mr. Kapustka nor anyone else at Future Bankers did anything about the loan application until February 28, 2000 — which was past the time Mr. Chow could have backed out of the real estate contract and was close to the time of closing. On February 28, Future Bankers submitted Mr. Chow's loan application to Aegis Mortgage Corporation, with whom Future Bankers had a contractual brokerage relationship. Apparently, Aegis rejected the application on the terms submitted, requiring a larger loan and a somewhat higher interest rate but Future Bankers did not inform Mr. Chow of this development. Instead the closing was set for March 17, 2000. Just before that date, the closing was reset by Aegis for March 20, 2000. Although a revised loan application was submitted by Future Bankers to Aegis to conform with the changes Aegis required, it was not signed by Mr. Chow, nor was he told about the changes.
Mr. Chow first received loan disclosures required by the federal Truth in Lending Act ("TILA"), 15 U.S.C. sec. 1638, Regulation Z, 12 C.F.R. sec. 226.18 and 12 C.F.R. sec. 226.19, at closing. Although Mr. Chow did receive a "good faith estimate" of closing costs at the time he filled out his loan application in January, 2000, this was based on his application for a 30 year fixed interest rate loan for $231,600 at an interest rate of 8.875. The loan he was actually given at closing was for $252,700 at an interest rate of 9.5 percent. He received no other disclosures of loan costs or closing costs until the date of closing. He did, however, sign a statement in January stating that he was also seeking a loan with a floating interest rate. In addition, when Mr. Chow filled out his loan application in January, he signed a statement acknowledging that he would have to take out private mortgage insurance. He says, however, that he was told the insurance would not be required. Ultimately it was, since his loan was for more than 80 percent of the purchase price. He learned this at closing. Although the "lock-in" fees were not disclosed on the TILA papers given Mr. Chow at closing, he was told before closing that they would not be included. The day after closing, he obtained a signed agreement from Mr. Kapustka, under which Mr. Kapustka agreed to repay the money he had obtained from Mr. Chow.
Mr. Chow sued various individuals and entities, including Aegis, Future Bankers, Mr. Kapustka and the head of Future Bankers, Kathleen Helms, alleging claims under federal and state law. Mr. Chow claims damages in the amount of $29,663 for fictitious "lock-in" in" fees, $7,128.64 in additional interest that represents the difference between what he would have paid under the lock-in rate and the actual interest paid up until the time he sold the house, statutory damages of $2,000 for each TILA violation, attorneys fees and punitive damages. Various opinions in this case have discussed those claims and I will assume familiarity with them in this opinion. According to the final pretrial order, default orders were entered against Future Bankers and Kathleen Helms, but they are not noted on the court's docket sheet. Before trial, Mr. Kapustka signed a settlement agreement, in which he agreed to make certain payments. It does not appear, however, that either party ever sought dismissal of the case against him. The only defendant to appear for trial was Aegis.
The various fees paid by Mr. Chow to Mr. Kapustka were broker's fees that Mr. Chow argues were required disclosures under the Federal Truth in Lending Act ("TILA"), 15 U.S.C. sec. 1605(a)(6), sec. 1638; Regulation Z, 12 C.F.R. sec. 226.4(a)(3), 226.18. In addition, a lender's TILA disclosures are required to be made not later than three business days after the receipt of a consumer's written application (unless the application is rejected before that time) or before the credit is extended, whichever is earlier. In this case the preliminary and final disclosures were made only at the closing. Aegis excuses this on the ground that it received the written application within three days of the closing. That application, however, was not signed by Mr. Chow and indeed he did not know about it. The rejection of the earlier application terms was sent by Aegis to Future Bankers within the three-day period to Future Bankers, but was not provided to Mr. Chow.
The question in this case is whether Aegis is liable for failure to make these disclosures. Aegis would be liable if it is the agent of Future Bankers. A party alleging agency has the burden of proving the relationship. E.g. Mills v. State Nat'l Bank, 28 Ill. App. 3d 830, 834, 329 N.E.2d 255, 259 (1st Dist. 1975). Since Mr. Chow has the burden of proof in this case, it is his burden to demonstrate by a preponderance of the evidence that Future Bankers was acting as Aegis' agent. He has failed to do this. Mr. Chow signed a contract with Future Brokers on January 20, 2000, in which he agreed that Future Brokers would act as his broker in attempting to obtain a loan. Future Bankers and Aegis also had an agreement, under which Aegis disclaimed any agency relationship between the two. While that agreement would not be conclusive, particularly since it also required that Future Bankers make disclosures that would be the responsibility of Aegis, the fact that Mr. Chow understood that he had an agency relationship with Future Bankers is persuasive. I conclude that Future Bankers acted as Mr. Chow's rather than Aegis' agent in this transaction.
Mr. Chow also alleges that the Truth in Lending disclosures, when made at closing, were inaccurate. I conclude that they were accurate within the requirements of 12 C.F.R. sec. 226.22 and 226.18.
For the reasons stated in this opinion, judgment is entered in favor of Aegis Mortgage Company.