The Appellate Court found against the borrowers on all four of their arguments. First, the court concluded that the unclean hands doctrine was inapplicable. Second, the Court found that the mortgage agreement was not substantively unconscionable. Third, the Court found that the parole evidence rule barred evidence of promises made by the loan officer, the only evidence in the borrowers' fraudulent inducement claim. Fourth, the Court determined that the borrowers' TILA claims were too speculative to constitute material facts.
The borrowers in this matter allege that they were offered a 30 year fixed rate mortgage by an Ameriquest loan officer to help pay for outstanding debts. However, when the borrowers appeared at closing they were provided with documents for a variable rate mortgage. When the borrowers complained, they received verbal assurances from the loan officer that Ameriquest would refinance the loan before the interest rate increased. The borrowers allege they signed the loan based on this verbal promise from the loan officer. Prior to the first rate adjustment, approximately two years after closing, attempts by the borrowers to refinance their loan were denied by Ameriquest.
Soon thereafter, the borrowers stopped making payments on their loan and Deutsche Bank, the owner of the note, filed a foreclosure action. The borrowers filed counterclaims for fraudulent inducement and TILA violations and a third-party complaint asserting fraudulent inducement and TILA claims against Ameriquest.
The trial court granted summary judgment in favor of Deutsche Bank and Ameriquest, the borrowers appealed claiming genuine issues of material existed regarding the equitable defenses of unclean hands and unconscionability; that the trial court erred in ruling that the parole evidence rule barred evidence of statements and promises made by Ameriquest; and that genuine issues of material existed regarding the borrowers' TILA claim.
The Appellate Court found that the doctrine of unclean hands should not apply to Deutsche Bank because the doctrine only applies to conduct done by a Plaintiff. The borrowers' argument that Deutsche was a holder of the note and took the note subject to all valid defenses, was irrelevant because the dispositive factor was that the borrowers did not allege that the specific Plaintiff in this case, Deutsche Bank, had committed wrongdoing. As a matter of law, the borrowers could not "assert an unclean-hands defense based on the conduct of a party other than Deutsche."
The Appeals Court next looked to the borrowers' claim of unconscionability. While the Court determined that unconscionability is a legally valid defense against Deutsche Bank, it concluded that there were no genuine issues of material as to whether the contract was substantively unconscionable. The court looked at the borrowers' financial circumstances after refinancing and found a number of facts that argued against substantive unconscionability. The court noted that the borrowers were able to immediately lower their minimum debt payments, received a significant sum at closing, were given two years before the rate increase to fix their finances, and were not subject to interest rates "so extreme as to appear unconscionable."
The Appellate Court then addressed the issue of the whether the parole evidence rule barred evidence of the loan officers' alleged statements, the primary evidence in the borrowers' third party fraudulent inducement claim against Ameriquest. The parole evidence rule provides that where parties have entered into a completely integrated written contract, extrinsic evidence of prior oral agreements, which contradict the contract, are inadmissible. The Court found that, "the parole evidence rule may not be overcome by a fraudulent inducement claim which alleges that the inducement to sign the writing was a promise, the terms of which are directly contradicted by the signed writing." Thus, the evidence of the loan officer's alleged promise was barred by the parole evidence rule.
The Appellate Court also determined that there was no genuine issue of material fact regarding the borrowers' TILA counterclaim and third-party claim. The borrowers alleged that a number of their closing costs were not bona fide and reasonable and therefore should have been included in the finance charge. In rejecting the borrowers' arguments, the court determined that a title search and a title examination are not synonymous tasks and that there is evidence that both were performed in relation to the borrowers' loan. Further, the Court concluded that the borrowers were only able to speculate and could not offer actual evidence that charges assessed were not bona fide or reasonable. Therefore, the court determined summary judgment as a matter of law was appropriate.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.