Res Judicata Bars TILA Recovery

In the recent Stuart v. Decision One Mortg. Co., LLC, 975 A.2d 1151 (Pa.Super. 2009) opinion, Pennsylvania's Superior Court barred defaulting mortgage foreclosure defendants from asserting Truth In Lending Act, 15 U.S.C.A. §1601 et seq. (“TILA”) rescission claims in a subsequent proceeding under res judicata.

Specifically, after allowing a default judgment to be entered against them in a mortgage foreclosure in which they failed to assert any counterclaims or defenses, the Stuart v. Decision One Mortg. Co., LLC plaintiffs asserted TILA rescission and money damages claims against their mortgage lender in a separate proceeding.

In affirming the trial court’s “judgment on the pleadings” grant, the Superior Court ruled that “rescission relates to the very transaction that formed the basis of the foreclosure action to which a default judgment was entered”, “res judicata applies not only to claims that were made but also to claims that could have been made” and that “a successful TILA claim would . . . undermine the {mortgage foreclosure} default judgment”. 975 A.2d at 1152-1153.

Further, Pennsylvania’s Superior Court adopted the R.G. Financial Corp. v. Pedro Vergara-Nunez, 446 F.3d 178 (1st Cir. 2006) ruling in holding that because the Stuart v. Decision One Mortg. Co., LLC plaintiffs “had the opportunity to raise rescission as a defense to the foreclosure and failed to do so” they “cannot sit out one cause of action and then force the opposing party into another action over an issue that both could and should have been raised in the first place”. 975 A.2d at 1154.

The Stuart v. Decision One Mortg. Co., LLC opinion’s impact for mortgage lenders will be enormous.

Default judgments in mortgage foreclosures will hereafter eviscerate TILA rescission claims throughout the Commonwealth of Pennsylvania.