## Facts

- In 2006, William J. Paatalo refinanced an Oregon property with Washington Mutual Bank, F.A. (WaMu), obtaining an approximately $880,000 option-ARM loan and a HELOC (later increased to about $155,000), each secured by a deed of trust.
- Paatalo alleged WaMu inflated the property’s appraisal, falsified his income on the loan application, and committed TILA disclosure violations, including failure to provide proper notices relating to rescission.
- On March 29, 2008, Paatalo sent WaMu a written notice purporting to rescind both loans under TILA.
- Paatalo alleged WaMu refused to recognize rescission and indicated he could not rescind unless he first paid the debt in full.
- WaMu entered FDIC receivership on September 25, 2008, and certain assets and liabilities, including the loans, transferred to JPMorgan Chase Bank, N.A.
- In 2009, the property was sold in a nonjudicial foreclosure trustee’s sale, and JPMorgan purchased the property.
- Paatalo sued JPMorgan seeking declaratory relief that the 2008 TILA rescission voided the security interest, rendering the 2009 trustee’s sale and later recordings null and void and leaving title in him.
- JPMorgan moved to dismiss under Rule 12(b)(6).

## Issues

1. Whether a borrower can plausibly plead that TILA rescission was exercised by sending timely written notice, without filing a lawsuit within the three-year period.
2. Whether an effective TILA rescission, if proven, could plausibly support declaratory relief that a later nonjudicial foreclosure and trustee’s sale were void because the security interest was voided.
3. Whether defenses such as tender requirements, timeliness, and receivership-related arguments barred the claim as a matter of law at the pleading stage.

## Decision

- The court denied JPMorgan’s Rule 12(b)(6) motion to dismiss.
- The court held the complaint plausibly alleged that Paatalo exercised rescission by sending timely written notice within TILA’s three-year period.
- The court concluded it was plausible that, if rescission was effective, the security interest was voided and the later trustee’s sale could be subject to a declaration of invalidity.
- The court determined JPMorgan’s asserted defenses required further development or were not dispositive on the face of the complaint at the motion-to-dismiss stage.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded factual allegations as true and asks whether the complaint states a plausible claim for relief.
- A borrower’s exercise of TILA rescission may be accomplished by sending written notice within the statutory period; the statutory text does not require a lawsuit within that period to effectuate rescission.
- If rescission is effective under TILA, the security interest is voided, and the parties’ unwinding obligations (including tender-related matters) are addressed through subsequent proceedings.
- Declaratory judgment relief may be available where the pleaded facts plausibly support a live dispute over the validity of a foreclosure sale and the parties’ competing claims to title.

## Conclusion

The court allowed the action to proceed because the borrower plausibly alleged timely TILA rescission by written notice and a resulting basis to challenge a later nonjudicial foreclosure sale, leaving tender and related defenses for later stages.


Paatalo v. JPMorgan Chase Bank, N.A., 146 F. Supp. 3d 1239 (D. Or. 2015)