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Casenotes

Wisconsin

Foreclosure

Waterstone Bank SSB v Panenka, 2009 AP 1297 (Wis Ct App, 2010).

Facts:Waterstone Bank SSB (Waterstone) made a loan to Kimberly Panenka (Panenka) in 2003. This loan was secured by a property in Chenequa, Wisconsin. This loan was subsequently refinanced in 2006 and 2007. During the 2007 refinance, Panenka borrowed an additional $90,765.90 in excess of the existing principal balance on the 2006 loan. In December 2007, Panenka defaulted and Waterstone initiated a foreclosure action. Panenka defended the foreclosure, alleging a series of federal mortgage lending law violations, including Truth in Lending Act ("TILA") violations.

Panenka alleged that she had the right to cancel the 2006 and 2007 loans because of a finance charge error in the 2007 loan, where Waterstone had understated the charge by $226. She further alleged that she was never properly notified of her right to cancel on either the 2006 or 2007 loans and that, therefore, she should be able to rescind both. The trial court agreed that the 2007 loan should be rescinded due to the finance charge, but refused to rescind the 2006 loan, finding that Waterstone's Notice of Right to Cancel was substantially similar to the model form offered by TILA. The court found that, therefore, the full balance of the 2006 was owed by Panenka. As a result, only the additional $90,765.90 in loans was rescinded. Panenka appealed.

Holding:Affirmed. The court of appeals found that it was appropriate under TILA for Waterstone to use its own Notice of Right to Cancel. The statute provides only that the form used must be substantially similar to that specified in the statute. Given the small changes that Waterstone had made to the form and their general lack of significance, the court found that the form had not been substantially altered. As a result, the court ruled that the trial court had properly determined that Panenka could not rescind the 2006 refinanced loan.

Furthermore, the court determined that because the 2006 refinance loan was valid and nonrescindable, the only amount that could be rescinded from the 2007 loan was the additional $90,765.90. The court concluded that the refinance only operated to add that amount to the loan and that to cancel the full loan principal outright would be inappropriate given that the 2006 loan was valid. The court concluded that the appropriate standard to determine whether justice had been done was to consider whether the aggrieved party, the borrower, was in the same position as he or she had been in prior to the offending loan. Because the principal was owed in 2006 anyway, the court decided it would be improper to cancel it for the TILA violation on the 2007 loan.

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