IBA Compliance Connection

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We are refinancing a mortgage loan secured by the primary dwelling of a non-married couple who are living together. Only one of the two has signed the mortgage and deed, but both will be signing the note for the refinancing. We know that the borrower who appears on the deed should sign the right of rescission, but should the other, non-owner borrower sign the right of rescission as well?

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We do not believe that the non-owner borrower should receive notice of the right of rescission required by Regulation Z.

To be considered a “consumer” entitled to a right of rescission under Regulation Z, a person must have an ownership interest in the dwelling that is encumbered by the creditor’s security interest. As the individual described does not have an ownership interest in the dwelling, they are not a consumer with a right of rescission and are not entitled to notice of the right of rescission.

We note that under Regulation Z, the right to rescind does not apply to a refinancing by the same creditor of an extension of credit already secured by the consumer’s principal dwelling. However, the right of rescission would apply to any “new amount financed” that “exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.”

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.23(a)(1) (“In a credit transaction in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section. . . .”)
  • Regulation Z, Official Interpretations, Paragraph 1026.23(a)(1), 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 1026.23(b)(1) (“In a transaction subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). . . .”)
  • Regulation Z, 12 CFR 1026.23(f)(2) (“The right to rescind does not apply to the following: . . . A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer’s principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.”)