Can borrowers relitigate TILA rescission claims in subsequent foreclosure suits? Johnson v. Nationstar Mortgage Explained

In Johnson v. Nationstar Mortgage, the Utah Court of Appeals addressed whether borrowers can relitigate Truth in Lending Act (TILA) rescission claims in subsequent foreclosure proceedings after those claims were previously adjudicated and dismissed with prejudice.

Background and Facts

The Johnsons defaulted on their 2007 mortgage and filed a notice of right to cancel under TILA in March 2010. When foreclosure proceedings commenced, they filed suit seeking injunctive relief from the nonjudicial foreclosure, arguing their TILA rescission terminated the lender’s right to foreclose. The district court dismissed their first suit with prejudice in January 2011, specifically rejecting their premise that a TILA rescission automatically cancels the security interest and terminates foreclosure rights. The Johnsons did not appeal and instead filed seven bankruptcies between 2010 and 2017.

When a new foreclosure sale was scheduled for 2018, the Johnsons filed another suit making identical TILA rescission arguments. They contended the new foreclosure constituted an “independent action” not covered by previous rulings and argued that Jesinoski v. Countrywide Home Loans essentially overruled the prior court’s decision.

Key Legal Issues

The central issue was whether the Johnsons’ TILA rescission claims were barred by the claim preclusion branch of res judicata. The Johnsons argued their TILA rescission constituted an “absolute defense” rather than a claim subject to preclusion.

Court’s Analysis and Holding

The court applied Utah’s three-element test for claim preclusion: (1) same parties or privies, (2) the claim was or should have been raised in the first action, and (3) final judgment on the merits. The court rejected the Johnsons’ characterization of their TILA rescission as merely a defense, finding they had treated it as an affirmative claim for relief in the first suit. The court noted that regardless of how TILA rescission might be characterized abstractly, the Johnsons “affirmatively requested relief from the nonjudicial foreclosure proceedings” and cited TILA rescission as the basis for such relief.

Practice Implications

This decision establishes that TILA rescission claims seeking affirmative judicial relief constitute claims subject to res judicata. Practitioners cannot relitigate previously dismissed TILA rescission arguments by characterizing them as defenses or by pointing to new foreclosure proceedings. The proper remedy for disagreement with a court’s TILA rescission ruling is timely appeal, not subsequent litigation. The decision also clarifies that Jesinoski does not provide grounds to relitigate previously adjudicated TILA rescission claims.