The opinion of the court was delivered by: LOUIS H. POLLAK
The motion to be addressed is plaintiff Howard Herrmann's motion for preliminary approval of a proposed class settlement of Herrmann's pending suit against defendant Meridian Mortgage Corporation.
The pending suit is a proposed class action brought by Herrmann, a Pennsylvania resident, against Meridian, a company which deals in home mortgages and has a place of business in Pennsylvania. Meridian is both an originating lender and a servicer of home mortgages assigned to it by other lending institutions. According to the amended complaint, Herrmann has a home mortgage with Meridian, pursuant to which Meridian maintains an escrow account funded by Herrmann from which Meridian pays out sums periodically due for insurance and property taxes and the like. What gives rise to this law suit is Herrmann's claim that Meridian routinely requires Herrmann (and other mortgagors similarly situated) to maintain an escrow account balance which exceeds (a) the amount contemplated by the governing mortgage contract and, more importantly, (b) the amount permitted by section 10 of the federal Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2609(a). RESPA is a statute enacted in 1974 (and thereafter occasionally amended, most recently in 1990), which was intended "to effect certain changes in the settlement process for residential real estate," including "a reduction in the amounts home buyers are required to place in escrow accounts established to insure the payment of real estate taxes and insurance." 12 U.S.C. § 2601(b). The somewhat delphic text of section 10 of RESPA is set forth in a footnote.
As Herrmann has rendered section 10 into English in his amended complaint, the statutory provision "prohibits lenders and mortgage servicers from requiring homeowners to maintain at all times in escrow accounts an amount which exceeds 1/6 of the total yearly amounts necessary to pay taxes and insurance premiums due on the property. . . ." Amended Complaint in Class Action P 1.
Herrmann's amended complaint, which speaks both for present and past Meridian mortgagors, is somewhat parsimonious with respect to jurisdictional allegations -- there are none -- but it does set forth five causes of action. The first cause of action is the one of chief substantive importance, alleging that Meridian, through its escrow account balance requirements, "repeatedly violates § 10 of RESPA." The first cause of action also appears to be the one of chief procedural importance since -- albeit without any mention of Title 28 -- it appears intended to invoke this court's federal question jurisdiction. The second cause of action alleges that the escrow account balance requirements breach Herrmann's mortgage contract with Meridian. The third cause of action alleges that Meridian "deliberately and/or negligently misrepresented to Plaintiff and the other members of the Plaintiff Class that it is managing and servicing its mortgage escrow accounts in accordance with RESPA, in accordance with the requirements of its contract with Plaintiff, and in all other respects in a lawful manner, and requiring homeowners to maintain only those escrow balances required or permitted by law." The fourth cause of action alleges that "by unlawfully keeping and maintaining excessive balances in such mortgage accounts," Meridian has breached what is alleged to be the fiduciary duty Meridian, as "escrowing agent and trustee," owes to Herrmann. The fifth cause of action alleges that the "acts and omissions of Meridian as above described constitute unfair or deceptive acts or practices" contravening Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201 et seq.2
The amended complaint seeks (1) a declaration of the illegality, under RESPA and the governing mortgage contract, of Meridian's escrow account balance practices; (2) an injunction against requiring excessive escrow account balances; (3) the payment to each "mortgagor [of] a refund of any excess balances plus interest;" and (4) an award to the class of "its costs and disbursements, including reasonable attorneys' fees."
Meridian's answer to the amended complaint interposes seventeen defenses. The seventeenth recites that "Herrmann's 'first cause of action' fails because there is no private right of action under RESPA." Answer and Affirmative Defenses of Defendant Meridian Mortgage Corporation P 55.
Subsequent to the filing of Meridian's answer, the parties pursued discovery. Of particular importance to counsel for the putative class was information acquired in discovery relating to "the number of escrowed mortgage loans serviced by Defendant and the methodology used by Defendant in calculating and accumulating escrow payments." Settlement Agreement and Release P 5. Discussions ensued which have led to a proposed resolution of the suit -- a proposed resolution that is embodied in a Settlement Agreement which has been submitted to this court for preliminary approval.
The Settlement Agreement provides for the division of the plaintiff class of Meridian mortgagors into two subclasses: (1) persons with escrowed mortgage loans serviced by Meridian as of January 1, 1995, and (2) persons who had such loans for at least twelve consecutive months between January 1, 1984 and December 31, 1994.
The first subclass -- mortgagors on Meridian's rolls as of January 1, 1995 -- are to receive the bulk of the relief contemplated by the Settlement Agreement. The central element of that relief is Meridian's commitment to change to a new method of calculating required escrow balances for all mortgages on its books as of January 1, 1995 and thereafter. The agreed method -- denominated "aggregate escrow analysis methodology" -- contemplates that (1) defendant Meridian may "require that the mortgagor pay a monthly escrow deposit equal to the sum of the separate one-twelfth (1/12) fractions of each individual item" of taxes, insurance and other anticipated disbursements, and (2) "the low point in the ...