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Second amended answer_ classwide counterclaim_ counterclaims

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					                IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
                    COUNTY DEPARTMENT, CHANCERY DIVISION

BANK OF NEW YORK,                          )
                                           )
               Plaintiff,                  )
                                           )
     v.                                    )
                                           )
LINDA HEATH,                               )
                                           )                No. 98 CH 8721
               Defendant/Counterplaintiff, )                Judge Biebel
     v.                                    )
                                           )
BANK OF NEW YORK                           )
                                           )
               Counterdefendant.           )

            SECOND AMENDED ANSWER, CLASSWIDE COUNTERCLAIM,
                COUNTERCLAIMS, AND AFFIRMATIVE DEFENSES

       Defendant/counterplaintiff Linda Heath, by and through her attorneys, presents this

Second Amended Answer, Classwide Counterclaim, Counterclaims, and Affirmative Defenses to

plaintiff/counterdefendant Bank of New York’s complaint.

                                             ANSWER

               1.      Ms. Heath admits paragraph one of the complaint.

               2.      Ms. Heath has insufficient knowledge to admit or deny the facts alleged in

paragraph two of the complaint.

       3.              Ms. Heath admits subsections (a) - (d), (l) and (k) and denies subsections

(j), (m), and (o) in paragraph three of the complaint.

               4.      Ms. Heath has insufficient knowledge to admit or deny the facts alleged in

subsections (e) - (h), (l) and (n) in paragraph three of the complaint and demands strict proof

thereof.
                 5.     Ms. Heath has insufficient knowledge to admit or deny the facts alleged in

paragraph four of the complaint and demands strict proof thereof.

                                   FIRST COUNTERCLAIM
                               Violation of the Illinois Interest Act
                      Brought on behalf of a class of similarly situated persons

       6.               Ms. Heath asserts this counterclaim pursuant to the Illinois Interest Act,

815 ILCS 205, on her own behalf and on behalf of a class of similarly situated persons (described

below) that she seeks to represent.

A.     Parties

       7.               Defendant/Counterplaintiff Linda Heath at all times relevant was and is a

resident of Chicago, Illinois. She is the owner of the property at 7420 S. Eberhart, Chicago, IL.

She currently resides there with her daughter and two grandchildren.

       8.               Plaintiff/Counterdefendant Bank of New York is a corporation authorized

to do business in the state of Illinois. It is in the business of consumer lending.

B.     Facts Surrounding Ms. Heath’s Transaction:

       9.               On May 29, 1997, Ms. Heath entered a consumer credit transaction

(“loan”) with Amresco Residential Mortgage Corporation (“Amresco”).

       10.              The loan was an extension of credit against Ms. Heath’s existing equity in

her home, which is residential real estate in the state of Illinois. The loan was not a purchase

money mortgage.

       11.              Amresco assigned this loan to Bank of New York.

       12.              The loan had a stated principal of $60,200.

       13.              Amresco charged Ms. Heath loan origination fees and/or points of

$4,977.40.
       14.             The origination fees and/or points constitute 8.27% of the principal.

       15.             The origination fee is therefore in excess of 3% of the principal amount of

the loan.

       16.             The loan had a stated minimum interest rate of 14.38%.

       17.             The loan therefore requires payment of interest at a rate of more than 8%

per annum.

       18.             Amresco had actual knowledge of the terms of the loan, which were

apparent on the face of the loan documents. Amresco collected payments under the loan.

       19.             Bank of New York had actual knowledge of the term of the loan, which

were apparent on the face of the loan documents. Bank of New York collected payments under

the loan after the loan was assigned to it.

       20.             On information and belief, the total of all interest, discounts, and charges

determined by the loan contract for this loan exceeds the payoff balance owed by Ms. Heath.

       21.             When the total points and fees are greater than 8% of the total loan

amount, the mortgage is defined as a high rate mortgage pursuant to 15 U.S.C. § 1602(aa).

               22.      Bank of New York, as the assignee of a high rate mortgage, is subject to

all claims and defenses with respect to that mortgage that the consumer could assert against the

creditor. 15 U.S.C. §1641(d)(1).

C.     Class Allegations

               23.     The proposed class consists of individuals who entered into residential

home equity loans in the state of Illinois that carry an interest rate of 8% or more per annum and

charges in excess of 3% of the principal, and which Bank of New York now owns or services.


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       24.             The class is so numerous that joinder of all members is impracticable.

There are hundreds, possibly thousands, of people who are members of the class.

       25.             There are questions of fact or law common to the class that predominate

over any questions affecting only individual members. The predominant common question is

whether Bank of New York violated the Illinois Interest Act by entering into mortgages with an

interest rate in excess of 8% per annum and imposing charges in excess of 3% of the principal.

       26.             Ms. Heath will fairly and adequately protect the interests of the class. She

has retained counsel with many years of experience in class litigation.

       27.             The class action is an appropriate method for the fair and efficient

adjudication of the controversy.

D.     Violation of the Illinois Interest Act

       28.             Section 4.1a of the Illinois Interest Act, 815 ILCS 205/4.1a, limits the

amount of certain charges, including “points,” “service charges,” “discounts,” “commissions,” or

other charges, to not more than 3% for loans that are secured by residential real estate and that

have an interest rate of more than 8% per annum.

       29.             A knowing violation of the Illinois Interest Act subjects the offender to a

penalty of twice the total of all interest, discounts, and charges determined by the loan contract or

paid by the obligor, whichever is greater under Section 6 of the Act, 815 ILCS 205/6.

       30.             Because the loan documents so state on their faces, or otherwise, Bank of

New York had actual knowledge that the loans carried charges in excess of 3% and interest rates

in excess of 8% per annum when it originated or acquired the loans.




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                31.     Bank of New York is in the “subprime” residential home equity mortgage

loan business. Subprime home equity loans are those that are extended to homeowners with

purportedly subprime credit to refinance their homes, make repairs, or alleviate credit problems.

Although many subprime lenders provide a valuable service to low-income homeowners, others

use predatory tactics to strip low-income homeowners of their equity.

        32.             Bank of New York owns or services numerous subprime home equity

loans in Chicago, Cook County, and throughout Illinois. Many of these loans go into default,

and Bank of New York has brought numerous foreclosure actions in this Court and other courts

in Illinois in recent years.

                33.     Bank of New York purchases many of the homes it forecloses on at the

foreclosures sales. The price realized at the sales is almost always the balance due on the

mortgage, plus all outstanding fees and costs, which is far less than the value of the homes.

                34.     Ms. Heath’s and class members’ loans that are now owned or serviced by

Bank of New York carried an interest rate in excess of 8% per annum. Nonetheless, in violation

of the Act, Bank of New York imposed, collected and received charges in excess of 3% of the

principal amount of the loan, thereby violating the Act.

                35.     Section 6 of the Act, 815 ILCS 205/6, provides that if any person or

corporation knowingly receives any interest under an unlawful loan, the obligor is entitled to

recover from such person an amount equal to the greater of twice the total of all interest and

charges determined by the loan or paid by the obligor, plus fees and costs. Payments due and to

become due under the loan are to be reduced by this amount.




                                                 5
                36.     In many instances, as here, twice the interest and charges exceeds the

principal of the loan. As a result, homeowners like Ms. Heath in fact owe either nothing or a

trivial amount on their loans. Nonetheless, Bank of New York foreclosed or is threatening to

foreclose on Ms. Heath’s and many of the class members’ loans.

        1.      WHEREFORE, Ms. Heath, on her own behalf and on the class of persons she

seeks to represent, prays that this court:

                a.      Certify the proposed class as defined above, pursuant to Illinois Code of

                        Civil Procedure §5/2-801;

                b.      Declare that the loans of Ms. Heath and the class members violate the

                        Illinois Interest Act;

                c.      Grant interim injunctive relief enjoining Bank of New York from

                        prosecuting or continuing to prosecute any actions for foreclosure against

                        the class members until this matter is concluded;

                d.      Reform each loan pursuant to the Act and this Court’s equitable powers so

                        that the payments due and to become due are reduced by the amount

                        awarded to each member of the class pursuant to this action;

                e.      Enter an award in favor of each member of the class against Bank of New

                        York in the amount equal to twice the interest and charges under the loan

                        against Bank of New York;

                f.      Award the plaintiff and class members pre- and post-judgment interest;




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               g.     Award counsel for Ms. Heath and the class reasonable attorneys fees and

                      reimbursement of costs and amounts expended in the prosecution of this

                      matter;

               h.     Grant such other and further relief as is just and equitable.

                                 SECOND COUNTERCLAIM
                          Violation of the Illinois Consumer Fraud Act
                               Brought on behalf Ms. Heath only

       37.            Ms. Heath realleges all the paragraphs of her First Counterclaim.

               38.    Ms. Heath asserts this counterclaim pursuant to the Illinois Consumer

Fraud and Deceptive Business Practices Act, 815 ILCS 505 et seq.

               39.    Bank of New York is a mortgage company with extensive experience and

sophistication in transactions involving residential mortgages.

               40.    Ms. Heath is a single family homeowner, who is inexperienced and

unsophisticated in matters involving consumer lending.

               41.    As alleged above, plaintiff’s assignor provided Ms. Heath with a $60,200

loan with an adjustable interest rate that can go no lower than 14.38%.

               42.    Ms. Heath was required to pay $4,527 in fees and an additional $750.40 in

other prepaid finance charges. The $5277.40 in total fees paid by Ms. Heath are 8.77% of the

principal and 9.56% of the amount financed.

               43.    The fees charged to Ms. Heath far exceed the fees normally charged to

consumers in home mortgage transactions.

               44.    Additionally, in providing Ms. Heath with this unfair loan, plaintiff’s

assignor misrepresented the actual cost of her loan by failing to properly disclose the loan’s APR


                                                 7
and failed to timely and properly make all the necessary loan disclosures as required by the Truth

in Lending Act.

                45.    Furthermore, plaintiff’s assignor paid an unlawful kickback of 1% of the

loan to Chicagoland. In making this unlawful payment, plaintiff did not disclose to Ms. Heath

that this kickback resulted in a higher interest rate and substantially increased the cost of her

loan.

                46.    The actions described above are deceptive and offend public policy in

violation of the Illinois Consumer Fraud Act, 815 ILCS 505 et seq.

        47.            Ms. Heath suffered a substantial injury as a result of these actions and, as a

result, prays that this Court dismiss plaintiff’s complaint with prejudice.

        48.            Wherefore, Ms. Heath prays that this Court:

                a.     award her actual damages in an amount to be determined at trial;

                b.     award her punitive damages in an amount to be determined at trial;.

                c.     award her costs and attorneys’ fees; and

                d.     award further relief as the Court deems equitable, just and proper.

                                FIRST AFFIRMATIVE DEFENSE

        49.            Ms. Heath realleges all paragraphs of her First Counterclaim.

        50.            Ms. Heath is entitled to a complete set-off against all amounts that Bank of

New York claims are due under the terms of her mortgage pursuant to the Illinois Interest Act,

815 ILCS 205.

        51.            As such, she respectfully requests that the Court dismiss Bank of New

York’s complaint with prejudice.


                                                  8
                              SECOND AFFIRMATIVE DEFENSE

               52.     Ms. Heath realleges all paragraphs of her Second Counterclaim.

               53.     The actions described above are deceptive and offend public policy in

violation of the Illinois Consumer Fraud Act, 815 ILCS 505 et seq.

       54.             Ms. Heath suffered a substantial injury as a result of these actions and, as a

result, prays that this Court dismiss plaintiff’s complaint with prejudice.

                               THIRD AFFIRMATIVE DEFENSE

       55.             Amresco was a “creditor” as that term is defined by the Truth in Lending

Act, 15 U.S.C. §1602(f), and Regulation Z, 12 C.F.R. §226.2(a)(17).

       56.             The transaction between Amresco and Ms. Heath was a “consumer credit

transaction” as that term is defined in the Truth in Lending Act and Regulation Z.

       57.             The transaction between Amresco and Ms. Heath was a “closed-end credit

transaction” as the term is defined in 12 C.F.R. §226.2(10), and is subject to the requirements for

such transactions as set forth in 15 U.S.C. §1638 and 12 C.F.R. §226.17 - 226.24.

       58.             In the transaction between Amresco and Ms. Heath, Amresco took a

security interest in Ms. Heath’s principal place of residence.

       59.             Ms. Heath had the right to rescind pursuant to 15 U.S.C. §1635 and 12

C.F.R. §226.23.

       60.             The total points and fees payable by Ms. Heath exceeded the greater of the

amounts set forth in 15 U.S.C. §1602(aa)(1)(B).

       61.             The provisions of 15 U.S.C. §1639 and 12 C.F.R. §226.32 are therefore

applicable to the transaction between Amresco and Ms. Heath.


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       62.             Amresco violated the Truth in Lending Act, inter alia, by:

               1.      Failing to provide the disclosures to Ms. Heath that are required by 15

                       U.S.C. §§1639(a)(1) and (a)(2)(A), and 12 C.F.R. §§226.31(c)(1)-(3); and

               2.      Failing to provide the above disclosures to Ms. Heath at least three

                       business days prior to the consummation of the transaction, in violation of

                       15 U.S.C. §1639(b)(1) and 12 C.F.R. §226.31(c).

       63.             The failure to comply with any provision of 15 U.S.C. §1639 is deemed a

failure to deliver material disclosures for the purpose of 15 U.S.C. §1635.

       64.             Bank of New York, as the assignee of Amresco, violated TILA in the

manner described above.

       65.             Pursuant to the Truth in Lending Act, Ms. Heath had an absolute right to

cancel the transaction for three business days.

       66.             She elected to rescind the transaction and sent a notice of cancellation to

Bank of New York on February 25, 1999.

       67.             When a consumer elects to rescind the transaction pursuant to the Truth in

Lending Act, the consumer is not liable for finance or other charges. 15 U.S.C. §1635(b).

       68.             When a consumer elects to rescind the transaction pursuant to the Truth in

Lending Act, any security interest taken in connection with the transaction becomes void. 15

U.S.C. §1635(b).

       69.             Because the security interest is now void, Ms. Heath respectfully requests

that the Court dismiss Bank of New York’s complaint with prejudice.

                              FOURTH AFFIRMATIVE DEFENSE


                                                  10
       70.              Ms. Heath realleges all the paragraphs of her Third Affirmative Defense.

       71.              A creditor in a closed end credit transaction must accurately disclose to the

consumer the annual percentage rate of the transaction. 12 C.F.R. §226.18.

       72.              Ms. Heath received a Truth in Lending Act statement stating that the APR

is 15.552%.

       73.              Based on the disclosed payment schedule and the amount financed, the

actual APR is 15.7489%.

       74.              Bank of New York therefore violated the disclosure requirements of the

Truth in Lending Act, 15 U.S.C. §1638(a)(4) and 12 C.F.R. §226.18(e).

       75.              Pursuant to the Truth in Lending Act, Ms. Heath had an absolute right to

cancel the transaction for three business days due to the violation of 15 U.S.C. §1638(a)(4) and

12 C.F.R. §226.18(e).

       76.              She elected to rescind the transaction and sent a notice of cancellation to

Bank of New York on February 25, 1999.

       77.              When a consumer elects to rescind the transaction pursuant to the Truth in

Lending Act, the consumer is not liable for finance or other charges. 15 U.S.C. §1635(b).

       78.              When a consumer elects to rescind the transaction pursuant to the Truth in

Lending Act, any security interest taken in connection with the transaction becomes void. 15

U.S.C. §1635(b).

       79.              Because the security interest is now void, Ms. Heath respectfully requests

that the Court dismiss Bank of New York’s complaint with prejudice.

                                FIFTH AFFIRMATIVE DEFENSE


                                                 11
       80.             The loan at issue here was a “federally related mortgage loan” as that term

is defined in the Real Estate Settlement and Procedures Act (“RESPA”), 12 U.S.C. §2602(1).

               81.     The funding and origination of this transaction are “settlement services” as

that term is defined in RESPA, 12 U, S.C. §2601(3).

               82.     As part of the transaction, Ms. Heath paid a “mortgage broker fee” of

$3,997, an appraisal fee of $250, a processing fee of $250 and a credit report fee of $50 to

Chicagoland Home Mortgage (“Chicagoland”).

               83.     The disclosed minimum interest rate of 14.380% exceeded the plaintiff’s

par rate on 30-year adjustable rate loans.

               84.     In exchange for submitting an above-par-rate loan, Chicagoland received a

yield-spread premium of $602 (1% of the principal amount of the loan).

               85.     Payment of a yield-spread premium to Chicagoland violates RESPA's

prohibition against referral fees and kickbacks. 12 U.S.C. §2607.

       86.             As a result of the plaintiff’s violation of RESPA, she is entitled to

substantial damages that may exceed the balance due on the loan; as such, she respectfully

requests that the Court dismiss the plaintiff’s complaint with prejudice.

                                      Respectfully submitted,




                                      One of the attorneys for Linda Heath




                                                12
Thomas R. Meites
Michael Mulder
Jamie Franklin
MEITES, MULDER, BURGER & MOLLICA
208 South LaSalle, Suite 1410
Chicago, Illinois 60604
(312) 263-0272
#91086

Stephen Stern
LEADERSHIP COUNCIL FOR METROPOLITAN OPEN COMMUNITIES
111 W. Jackson Boulevard
12th Floor
Chicago, IL 60604
(312) 341-5678
#2727978

Nina Vinik
CHICAGO LAWYERS COMMITTEE FOR CIVIL RIGHTS UNDER LAW
100 N. LaSalle
Suite 600
Chicago, IL 60602
(312) 630-9744
#54796

John Bouman
Dory Rand
Wendy Stasell
NATIONAL CENTER ON POVERTY LAW
205 W. Monroe Street, 2nd Floor
Chicago, IL 60606
(312) 263-3830
#37020




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