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Hawaii High Court Rules Homeowners Cannot Invoke TILA Rights After Final Foreclosure - Eastern Savings Bank v. Esteban

April 1, 2013

Vincent Howard and our Chino foreclosure defense lawyers were disappointed to see a ruling upholding the dismissal of a predatory lending case. Eastern Savings Bank v. Esteban concerns a Hawaii couple's attempt to sue their lender for Truth in Lending Act violations. Eduardson Esteban and Emalyn P. Gabriel-Esteban brought the case after the foreclosure sale of the property, on the same day a circuit court was scheduled to hear a motion to confirm the sale and enter a deficiency judgment against them. The circuit court took judicial notice of the TILA case but confirmed the sale anyway. On appeal, the Hawaii Supreme Court ruled that res judicata principles bar the Estebans from bringing their TILA case after a foreclosure judgment is final, even though their assertion of rescission rights was timely under TILA rules.

Under the Truth in Lending Act, borrowers have three years to invoke their right to rescind a loan when the lender doesn't meet certain obligations. The Estebans took out their mortgage loan in August of 2007, but were unable to make the payments and the lender, Eastern, filed a foreclosure action in Hawaii court in January of 2009. They did not appear in the foreclosure case, and Eastern won a default judgment they did not appeal. Eastern bought the house from itself in November of 2009 and moved the next month for confirmation of the sale and deficiency judgment against the Estebans.

On the day that motion was to be heard, the Estebans mailed a letter to Eastern asserting their right to rescind the loan under TILA, alleging numerous violations. They then filed a federal lawsuit just hours before the confirmation hearing, seeking a declaratory judgment that the mortgage was cancelled. Later, they filed a brief in the state case arguing that the TILA case was timely because it was before the state court entered judgment on the foreclosure sale. The circuit court took judicial notice of the TILA case, but declined to stay confirmation of the foreclosure sale. It later confirmed the sale, agreeing with Ninth Circuit precedent that Hawaii res judicata principles applied because the Estebans had not appealed the judgment of foreclosure.

The Estebans' appeal argued that a prior foreclosure judgment should not bar an otherwise timely TILA action. The Hawaii Supreme Court agreed with the lower court that their TILA case was barred by res judicata. Res judicata precludes claims that might have been properly litigated in prior proceedings, the court noted. In this case, the foreclosure judgment was a final judgment on the merits, and the Estebans didn't defend the case or appeal it. The parties are the same. And the high court ruled that a TILA claim for rescission would have been properly litigated in the foreclosure action. Both Hawaii and federal courts have recognized TILA claims as a defense, the court said. Thus, the Estebans could have raised their claims as a defense to foreclosure, and failure to do so means the issue has already been litigated, the high court said.

Vincent Howard and our Lake Forest foreclosure defense attorneys are disappointed to see that this couple won't be able to litigate their predatory lending claims. A Truth in Lending Act violation is serious enough that Congress saw fit to make cancellation of the loan a remedy. Though the claims aren't treated with much detail in this case, the Estebans alleged very clear TILA violations: no TILA notices delivered at closing and inaccurate good-faith disclosures, among others. Because TILA is one of the strongest laws that currently exists for protecting borrowers, Vincent Howard and our Riverside County foreclosure defense lawyers would prefer to see stronger enforcement of it and investigations into alleged violations.

If you believe you were deceived when you took out your home loan, don't wait to call Howard Law, P.C., to discuss your legal rights. You can send us an email anytime or call toll-free at 1-800-872-5925.

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