TILA Rescission Meets Derecognition: Why Homeowners Have No Way Out

By William J. Paatalo Mortgage Fraud Investigator | Expert Witness | Homeowner

bill.bpia@gmail.com

Recently, when I exercised my right to rescind under the Truth in Lending Act (TILA), I did so knowing full well that the law was on my side. I complied with every statutory requirement. I notified the creditor in writing. I did it within the required time window. I did everything the law asked me to do. Even my pretender lender admitted to me that they violated the TILA disclosure requirements and were not in compliance; acknowledging that my conditional right to rescind would thus extend to 3-years.

And yet again, I am being met with hostility, denial, and a retaliatory response from attorneys who know—deep down—that their client cannot lawfully comply with TILA’s rescission procedure. Why? Because the truth is far darker than any courtroom wants to admit:

There is no party left who can lawfully unwind the transaction.

The Problem of Derecognition

Under the accounting standard ASC 860, when a loan is securitized, it is “derecognized” from the books of the originator. This means it is permanently removed from their accounting ledger. They no longer own it. They no longer control it. And they no longer have the ability to enforce it—or unwind it in the event of a rescission. And, they cannot accept a valid tender as well.

That’s the problem: TILA assumes that a party exists to unwind the deal. Derecognition ensures that no such party exists. These two frameworks—consumer protection law and securitized accounting—are fundamentally incompatible.

A Modern Example: Rescission Meets the Wall

In my recent TILA rescission, the facts revealed severe and material defects in both the origination and post-closing treatment of my alleged loan; defects that were admitted in email communications with me whereby the pretender lender attempted to entice me into backdating the TILA disclosure documents to bring the closing into compliance. This raised a red-flag. When I explained who I was and my background, and sought a copy of my complete closing package, I discovered signs of a pre-engineered transfer and derecognition of the asset—details that were never disclosed as required under TILA.

Upon discovering these red flags, I initiated my own administrative process. I began by sending a Qualified Written Request (QWR) to the servicer, seeking documentation regarding transfers, endorsements, and chain of title. Their response confirmed that the loan had been sold, but no endorsements or assignments had been executed—evidence of derecognition.

Next, I served a formal notice under UCC § 2-609, demanding verification of the creditor’s identity and evidence of their lawful right to enforce the alleged debt. No response was ever received. This silence constituted a default under the administrative process.

Only after exhausting these steps did I lawfully exercise my right to rescind. The record now reflected that no party existed who could accept tender, return the consideration, or cancel the lien—as mandated by 15 U.S.C. § 1635(b). This is why the administrative process is now essential: it establishes the absence of a lawful counterparty, exposes the accounting fraud, and confirms the impossibility of rescission reversal.

A History Repeats: Paatalo v. JPMorgan Chase and Judicial Hostility

This isn’t the first time I’ve witnessed this kind of retaliation. The first time I exercised my right of rescission under TILA was in 2015, on the heels of the Jesinoski decision, in the District of Oregon in the case of Paatalo v. JPMorgan Chase. That federal action challenged unlawful foreclosure and asserted the full effect of TILA rescission, and was later cited in over 16 federal Article III courts across the country. My argument—centered on the absolute effect of rescission upon mailing—was recognized as authoritative. And yet, I received no remedy.

Now, years later, I have again exercised my right under TILA. And once more, I am met not with compliance, but with threats, deflection, and deliberate ignorance of the law.

This is not the failure of a statute—it is the failure of those entrusted to uphold it.

The Bottom Line

There was no loan in the conventional sense. There was a transaction designed to immediately convert my signed promise into a securitized asset. The loan was never funded in the way consumers, or myself, are led to believe. And when homeowners attempt to unwind these deals through legal rescission, they find themselves facing threats, silence, outright fraud, and years of contentious and costly litigation.

This is not just a denial of legal rights. It is structural fraud.

This fraud crosses into the territory of civil rights violations, as it denies homeowners the ability to access and enforce statutory protections under the law. When a system is designed to strip a citizen of their rights, and then punishes them for asserting those rights, it is not merely unjust—it is unconstitutional.

I am sharing this now because it is time for the public to understand: the system was built to make rescission impossible. And anyone who threatens a homeowner for exercising that right should be prepared to answer for it.

Stay informed. Share the truth. More is coming.