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Does the right of rescission apply to a refinancing where we are removing one of the two borrowers on the loan? We are not advancing new funds, and the borrower who is refinancing will pay the closing costs out of pocket. – IBA Compliance Connection

IBA Compliance Connection

Your go to source for compliance!

Does the right of rescission apply to a refinancing where we are removing one of the two borrowers on the loan? We are not advancing new funds, and the borrower who is refinancing will pay the closing costs out of pocket.

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No, we do not believe that the right of rescission (ROR) applies. The ROR does not apply to a refinancing of a loan that already is secured by the borrower’s principal dwelling if no new money is advanced. Based on the information you gave us, both conditions are met here. Also, we note that amounts attributable to most closing costs, such as title examination fees and insurance fees, would not trigger the ROR because they do not count as a new advance of money.

For resources related to our guidance, please see below:

  • Regulation Z — 12 CFR 1026.23(f)(2) (ROR does not apply to a refinancing by the same creditor of a loan that already is secured by the consumer’s principal dwelling, provided that no new money is advanced)
  • Regulation Z — Official Interpretations, 12 CFR 1026, Paragraph 23(f)(2), Comment 4 (“a new advance does not include amounts attributed solely to the costs of the refinancing . . . such as attorneys fees and title examination and insurance fees, if bona fide and reasonable in amount . . . ”)