Court: Court of Appeals for the Eighth Circuit; September 9, 2011; Federal Appellate Court
Jerry W. and Golda M. Washington filed a lawsuit against Countrywide Home Loans, Inc. under the Missouri Second Mortgage Loan Act (MSMLA), alleging unauthorized interest and fees. The case was removed to federal court on diversity grounds via the Class Action Fairness Act. The district court granted summary judgment for Countrywide, which the appellate court reversed and remanded.
In April 2005, the Washingtons applied for a second mortgage of $23,000 at 12% interest over 15 years. Prior to closing, they received a HUD-1 Settlement Statement detailing four charges: a $690 loan discount, a $100 settlement/closing fee, a $60 document processing fee, and $37.80 in prepaid interest. After the Washingtons signed the HUD-1 and the loan agreement, an audit revealed that the loan discount and settlement fee were improperly charged. Countrywide later wired $790 to a title company, which was disbursed to the Washingtons, but they were not made aware of the revised HUD-1.
On appeal, the Washingtons argued that they were wrongfully charged the aforementioned fees. The district court had ruled they lacked standing because they received the $790 as part of the loan disbursement and therefore suffered no loss. However, the appellate court found that despite receiving the funds, the Washingtons incurred a loss due to interest accruing on the full principal amount of the loan before they could use the $790. The court emphasized that the failure to reduce the principal by the improperly charged amounts constituted a financial loss, warranting reconsideration of the summary judgment.
The district court awarded actual damages to class members who paid excessive interest under Mo.Rev.Stat. 408.562. The Washingtons raised a factual issue regarding their loss and challenged Countrywide’s assertion that they could not prove causation linked to alleged MSMLA violations. Countrywide contended that the Washingtons must demonstrate that they would have altered their loan terms had they been notified of an additional $790. However, the Washingtons argued that the interest accrued for two days prior to their receipt of this amount indicated a potential loss due to the violations. On appeal, the Washingtons sought summary judgment regarding a $690 loan discount and a $100 closing fee, while the district court had previously ruled in favor of Countrywide, citing the Washingtons' lack of statutory standing. The court noted that neither party had sought summary judgment on the MSMLA violations concerning the loan discount and closing fees, preventing the appellate court from adjudicating those issues.
The appellate court remanded the case for matters improperly decided on summary judgment, emphasizing that a court cannot decide an issue without a motion for summary judgment. It also stated that summary judgment could be granted sua sponte if the losing party had notice and an opportunity to respond. The district court had found a $60 document processing fee permissible under Mo.Rev.Stat. 408.233.1(3), which regulates fees associated with second mortgage loans. The MSMLA allows lenders to charge higher interest rates in exchange for limiting closing costs and fees, serving as a consumer protection mechanism for high-interest second mortgage loans. The Missouri Court of Appeals previously addressed and dismissed Countrywide's arguments in this matter. In diversity cases, the law of the state, as established by its highest court, is binding unless overridden by federal law.
The Missouri Supreme Court upheld the Mitchell case as authoritative by denying its transfer from the court of appeals, establishing it as the best evidence of Missouri law. Decisions from the Missouri Court of Appeals are binding when they reflect Missouri law accurately. In the absence of Supreme Court guidance, predictions of how it would rule are made based on intermediate court decisions. The Mitchell case is pivotal in assessing the legality of a $60 document processing/delivery fee charged by lenders, which was deemed an unauthorized charge under the Missouri Small Mortgage Lender Act (MSMLA). In Mitchell, the appellate court affirmed a directed verdict that specific fees, including a 'loan discount' and others, violated the MSMLA, rejecting the defendants' argument that a 'loan discount' could be classified as an 'origination fee'—a permissible charge—because the fee must be correctly identified on the HUD-1A form. The court ruled that the designation on the HUD-1A determined the permissibility of the fees, denying the defendants' request to recharacterize them.
In the current case, Countrywide attempts to reclassify a 'Document Processing/Delivery' fee as a 'Document Preparation' fee, which is allowed under Missouri law, but the HUD-1 shows these as separate charges. The court maintains that Countrywide must adhere to the final HUD-1 characterization, confirming the fee as 'document processing/delivery.' Countrywide also argues that the list of authorized fees under section 408.233 is not exhaustive, but a conflict exists between Missouri courts regarding whether this list is exclusive.
Mitchell v. GMAC Mortg. LLC establishes that the list of permissible closing costs under section 408.233 is exclusive, contrasting with Mayo, which viewed the fees as examples rather than an exhaustive list. The court aligns with the Mitchell ruling, determining that since the document processing/delivery fee is not included in the exclusive list, it violates the Missouri Small Mortgage Lender Act (MSMLA). The court references prior rulings affirming that unauthorized fees, such as a 'Processing Fee' and 'Federal Express Fee,' constituted violations of the MSMLA. Additionally, the Washingtons argue that the $37.80 prepaid interest charged by Countrywide also breaches the MSMLA, as section 408.236 prohibits recovery of interest when fee limitations are violated. Since both the document processing fee and the prepaid interest are unauthorized charges under the MSMLA, the court concludes these constitute further violations. The case is reversed and remanded for proceedings consistent with this opinion, and the Washingtons may demonstrate potential financial loss related to the loan, contingent on whether the interest rate on the $790 exceeds their gains. The HUD-1A Settlement Statement is recognized as equivalent to the HUD-1 for relevant provisions.
