Oregon Federal Court Rules for Homeowner in Truth in Lending Case

By Hope Del Carlo

In November, the United States Court for the District of Oregon ruled in favor of a homeowner who is seeking to undo the non-judicial foreclosure of his home in 2009. The Opinion and Order denying the defendant bank’s motion to dismiss the homeowner’s complaint was issued by the Hon. Ann Aiken in Pataalo v. JPMorgan Chase, USDC Case No. 6:15-cv-01420-AA.

The plaintiff, William J. Paatalo, refinanced his existing home loan in 2006 into two loans with Washington Mutual Bank (WaMu), an option adjustable rate mortgage and a home equity line of credit (HELOC), both of which were secured by his home. Paatalo alleged a number of unlawful business practices against WaMu in conjunction with the servicing of the HELOC account and origination of the loans. In 2008, he sent a letter to WaMu asserting his right to rescind the loans, which WaMu declined to honor. In 2008, WaMu failed, and federal regulators seized it.

In 2009, WaMu began non-judicial foreclosure proceedings against Paatalo, culminating in a trustee’s sale of the home to itself in August 2009. WaMu began an eviction proceeding against Paatalo in 2010, then sold the property to a third party in 2011.

Then, in January 2015, the U.S. Supreme Court decided a seminal Truth in Lending Act (TILA) case, Jesinoski v. Countrywide Home Loans, 135 S. Ct. 790 (2015). Paatalo sent his lender a letter after this decision that stated that the Jesinoski case affirmed that the loan contracts were void as of the date he had rescinded in 2008. He then filed suit in July 2015 and asked the court to declare him the sole owner of the property, rendering void the foreclosure sale and all documents recorded against the home after his March 2008 rescission.

The lender  moved to dismiss the homeowner’s TILA claims, and the court ruled in favor of Paatalo, declining to dismiss. The court followed Jesinoski, which states unequivocally that under TILA a valid “rescission is effected when the borrower notifies the creditor of his intention to rescind,” not at some later point when the lender or a court recognizes or verifies the rescission. It further held that a borrower need not also file suit within TILA’s three-year statute of limitations to enforce such a valid rescission—the notice itself is sufficient to preserve the right.

Defendant argued that even if borrower’s TILA rescission efforts were valid, he could not enforce his rights in 2015, after his home had been subject to a trustee’s sale that cut off his rights to undo the sale, citing the Oregon Trust Deed Act and Mikityuk v. Nw. Trustee Servs., Inc., 952 F. Supp. 2d 958, 960 (D. Or. 2013). This argument was unavailing, as it reasoned that, “[i]f WaMu had no security interest in the property due to a rescission in March 2008, the FDIC could not have transferred any interest in the property to defendant, and defendant would have had no “legal authority to sell the property.”

The court concluded by noting that further litigation and discovery are necessary to determine the rights of the various parties with interests in the property.

Plaintiff was represented by John Cochran of Portland; WaMu was represented by Frederick Burnside, Kaley Fendall, and Kevin Kono of Davis Wright Tremaine, LLC.

Hope Del Carlo is a sole practitioner in Portland who represents consumers in disputes with creditors.