People ex rel. Madigan v. Wildermuth
91 N.E.3d 865
| Ill. | 2017Background
- The Illinois Attorney General sued Wildermuth, Kleanthis, and Legal Modification Network (LMN), alleging they ran a loan‑modification/short‑sale business that charged large advance fees, made deceptive promises, and targeted African‑American and Latino communities. Count IV alleged violations of section 3‑102 of the Illinois Human Rights Act (discrimination in "real estate transactions").
- The complaint alleges defendants primarily filled out and submitted paperwork for loan modifications and recommended short sales; they did not allege defendants were mortgage lenders or affiliated with lenders.
- Defendants moved to dismiss under section 2‑615, arguing their activities (legal services and paperwork assistance) do not constitute providing "other financial assistance" or engaging in a "real estate transaction" under the Act. The Attorney General argued a "reverse redlining" theory and that loan‑modification services fall within the Act.
- The circuit court denied the motion to dismiss (noting defendants acted as mortgage brokers). The circuit court certified the question whether a reverse‑redlining HRA claim may be alleged where the defendant is not alleged to be a mortgage lender.
- The appellate court answered yes, concluding the Act’s "other financial assistance" language broadly covers loan‑modification services, relying on federal FHA precedent.
- The Illinois Supreme Court affirmed the appellate court’s answer to the certified question but reversed the appellate court’s reasoning and dismissed Count IV without prejudice, holding the complaint failed to allege defendants provided the requisite "financial assistance" or actually brokered short sales.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "other financial assistance" in the Act includes defendants' loan‑modification paper‑work services (i.e., constitutes a "real estate transaction"). | AG: "Other financial assistance" should be read broadly to cover assisting borrowers to obtain loan modifications. | Defendants: They did not provide funds or credit, were not lenders/brokers/affiliates, and merely prepared paperwork/legal services. | Held: Not covered. "Other financial assistance" contemplates providing funds or acting as a conduit affecting credit terms; mere paperwork/legal negotiation for modifications is not sufficient. Complaint dismissed as to this theory. |
| Whether a reverse‑redlining theory requires the defendant be a mortgage lender. | AG: Reverse‑redlining theory can apply outside traditional mortgage lenders; statute does not require lender status. | Defendants: Reverse‑redlining applies to credit extensions; defendants are not lenders and thus claim fails. | Held: Plaintiff need not allege lender status to bring a reverse‑redlining theory generally, but allegations here did not satisfy the Act’s definition of "financial assistance." |
| Whether defendants could be treated as "real estate brokers" (§3‑101(D)) because they held themselves out as negotiating short sales, creating liability under §3‑102. | AG: Defendants advertised negotiating short sales and therefore held themselves out as brokers; that suffices to invoke broker liability. | Defendants: Even if they held themselves out as brokers, there is no allegation they actually brokered short‑sale transactions or altered transaction terms because of discrimination. | Held: Broker status alone is insufficient—liability requires engaging in a defined "real estate transaction" (e.g., brokering residential real property) and discriminatory alteration of terms; complaint lacks allegations of actual brokering or discriminatory alteration. |
| Whether the circuit court properly denied the section 2‑615 motion to dismiss. | AG: Complaint adequately pleads a practice of discriminatory furnishing of services in connection with real‑estate financing. | Defendants: Complaint fails to plead elements of a §3‑102 claim (no financial assistance or real‑estate transaction). | Held: Denial was erroneous as to Count IV. The Supreme Court vacated parts of the appellate analysis and remanded with Count IV dismissed without prejudice. |
Key Cases Cited
- American Family Mut. Ins. Co. v. NAACP, 978 F.2d 287 (7th Cir. 1992) (property‑casualty insurance is not "financial assistance" for purposes of FHA §3605)
- Massachusetts Indus. Fin. Agency v. United States, 910 F. Supp. 21 (D. Mass. 1996) (quasi‑public agency that issued bond proceeds was a necessary conduit of funds and thus provided financial assistance)
- Eva v. Midwest Nat’l Mortg. Bank, 143 F. Supp. 2d 862 (N.D. Ohio 2001) (affiliate that managed and profited from loan program was sufficiently connected to financing to qualify as providing financial assistance)
- Davis v. Fenton, 26 F. Supp. 3d 727 (N.D. Ill. 2014) (legal representation in foreclosure/negotiation does not make attorneys lenders/brokers under FHA §3605; section applies to lenders/brokers/appraisers)
- Davis v. Wells Fargo Bank, 685 F. Supp. 2d 838 (N.D. Ill. 2010) (section 3605 applies to transactions involving the making or purchasing of loans; nonlender actors generally outside its scope)