Weinberger v. Bell Federal S. & L. Ass’n: Breach of Contract Case Arising Out of Enactment of RESPA Reviewed

In Weinberger v. Bell Federal S. & L. Ass’n, the Appellate Court of Illinois addressed the trial court’s dismissal of a class action by mortgagors against a bank. It held that the mortgagors’ allegation that, after the enactment of the Real Estate Settlement Procedures Act (RESPA), the bank required amounts in excess of those agreed to in the mortgage, was sufficient to state a breach of contract claim against the bank. The case was reversed and remanded.

The Weinbergers (Plaintiffs) had a mortgage, dated September 16, 1965, from Bell Federal Savings. Under the mortgage, the Plaintiffs were required to make monthly escrow payments equal to 1/12 of the annual tax assessments and insurance premiums. After the enactment of RESPA, and as authorized by the RESPA, Bell instituted a “cushion” policy to protect against rising tax bills. This required the Plaintiffs to place an additional amount in a separate tax escrow. In order to avoid penalties, the Plaintiffs paid the added amount, but filed a class action suit alleging breach of mortgage contract, unjust enrichment, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. Bell’s motion to dismiss was granted by the trial court. The Plaintiffs appealed asking that the case be remanded with directions to proceed further. The Appellate Court of Illinois heard the appeal, noting that no class had been certified at that point.

The court noted that the Plaintiffs’ third amended complaint alleged that after the enactment of RESPA in 1994; Bell improperly applied the escrow provisions of RESPA retroactively to their mortgages which had originated prior to the passage of RESPA. The Plaintiffs also alleged that the increased escrow payments required by Bell after 1974 were violative of their agreement with Bell. The court noted that a motion to dismiss “admits not only the facts alleged in a complaint, but all reasonable inferences that can be drawn therefrom.” The appellate court found that the trial court had held no fact hearing and merely granted Bell’s motion to dismiss. Based on the allegations, the appellate court held that the Plaintiffs’ claim stated a cause of action for breach of contract.

The court also addressed what the trial court described as the “cushion.” The appellate court found that nothing in the mortgage contract or the law prior to RESPA provided for a cushion in the tax escrow for the mortgagor to minimize the effect of ever-increasing taxes. Further, nothing in the Plaintiffs’ complaint or inferences drawn from its allegation authorized Bell to extract such a cushion. The court also noted that if there was an inference from RESPA, it was to the contrary. Thus, the court reversed the case and remanded it for further determination on what the parties intended in their contract’s provisions relating to tax escrows.

Weinberger v. Bell Federal S. & L. Ass’n, 262 Ill. App. 3d 1047, 635 N.E.2d 647 (1994).