IBA Compliance Connection

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We originated a home equity line of credit (HELOC) for the property owner. The borrower’s wife signed only the homestead waiver portion of the mortgage, since she does not hold title to the home securing the HELOC. Our loan software produced a right of rescission form for the husband but not for the wife. Shouldn’t the wife sign a right of rescission form as well?

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admin

No, the wife is not entitled to the right of rescission because she is not an owner of the property securing the HELOC.

The right of rescission applies only to persons with an ownership interest in the mortgaged property, and it does not apply to those with “leaseholds or inchoate rights, such as dower.” While the wife did have a homestead right in the home, due to her status as the owner’s spouse, we do not believe that her homestead right constitutes an ownership interest for purposes of the right of rescission.

For resources related to our guidance, please see:

  • Regulation Z, Open-End Credit, 12 CFR 1026.15(a) (The right of rescission applies only to “each consumer whose ownership interest is or will be subject to the security interest . . . .”)
  • Regulation Z, Official Interpretations, Paragraph 15(a), Comment 2 (“To be a consumer within the meaning of § 1026.2, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor’s security interest, although that person need not be a signatory to the credit agreement. For example, if only one spouse signs a credit contract, the other spouse is a consumer if the ownership interest of that spouse is subject to the security interest.”)
  • Regulation Z, 12 CFR 1026.2(a)(11) (“Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest. . . .”)
  • Regulation Z, Official Interpretations, Paragraph 2(a)(11), Comment 2 (“For purposes of rescission under §§ 1026.15 and 1026.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. Thus, if a security interest is taken in A’s ownership interest in a house and that house is A’s principal dwelling, A is a consumer for purposes of rescission, even if A is not liable, either primarily or secondarily, on the underlying consumer credit transaction. An ownership interest does not include, for example, leaseholds or inchoate rights, such as dower.”)
  • Illinois Code of Civil Procedure, 735 ILCS 5/12-904 (“No release, waiver or conveyance of the estate so exempted shall be valid, unless the same is in writing, signed by the individual and his or her spouse, if he or she have one . . . .”)