Topic: Right of Rescission (ROR)
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We are extending a closed-end mortgage loan secured by a second lien on a home (we have the first lien as well). Should we use the right of rescission notice contained in model form H-8 (General) or H-9 (Refinancing With Original Creditor)? Our Loan Department thinks we should use form H-9 because the extension of new money can be thought of as a refinance, even though we identified the transaction as a home equity loan, not a refinance, on our TRID disclosures.
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We do not recommend using form H-9 unless the transaction is satisfying and replacing your original loan and meets the definition of a “refinancing” under Regulation Z. Whether a transaction is considered a “refinancing” depends on the specific circumstances of the second lien and your contract with the borrower. Under Regulation Z, a refinancing occurs,…
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A borrower has asked if we can increase the maximum loan limit on a maturing HELOC to save them the time and fees associated with obtaining a new loan. The borrower also would like to extend the maturity date and change the interest rate from variable to fixed. Is this possible?
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Yes, we believe it is possible to modify the terms of an existing HELOC before maturity to increase the loan limit, extend the maturity date, and change the interest rate from a variable rate to a fixed rate — provided the borrower signs a modification agreement reflecting these terms and they receive a notice of…
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We extended a purchase money bridge loan secured by the borrower’s current dwelling and the new dwelling being acquired. The promissory note and mortgage on the current dwelling were signed and dated three days before we disbursed the loan proceeds to allow for the three-business-day right-of-rescission (ROR) period to pass. The mortgage on the new dwelling was signed and dated on the date of disbursement, when the borrower acquired the new dwelling. However, our auditors told us the ROR documents were invalid since the borrower was not provided with the mortgage on the new dwelling to sign and date three days before the closing, as the borrower must review all documents related to the transaction three days before the purchase closing. If the auditors are correct, how can these types of mortgage transactions be properly executed?
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We do not believe the right of rescission requirements in Regulation Z require you to provide and have the borrower sign “all documents related to the transaction” three days before the closing or that the failure to have the borrower sign the mortgage on the new dwelling three days before the closing invalidated your ROR…
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We have a borrower who is building a second dwelling on their property that they intend to live in after construction is completed. We will be financing the construction of that dwelling and taking the dwelling and land as collateral. Currently, the borrower is living in a dwelling located on the same property, but this dwelling will be destroyed after construction is completed. We are not taking a security interest in the first dwelling and its value is omitted from the property’s appraisal. Do we need to provide a right of rescission?
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We do not believe that you need to provide a right of rescission for the borrower’s construction loan, as it would be considered a non-rescindable residential mortgage transaction under Regulation Z. Regulation Z states that the right of rescission does not apply to residential mortgage transactions, which include loans secured by security interests in the…
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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…
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If we did not provide a right of rescission notice to a borrower in connection with a consumer mortgage loan in which the borrower received some cash back at closing, would a refinancing to pay off that cash portion extinguish the borrower’s right of rescission on the original loan?
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No, we do not believe that a refinancing of this loan would result in an expiration of the original rescission period (which would be three years if you failed to originally provide a right of rescission notice). Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower’s right to rescind…
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A customer with a fixed-rate residential mortgage loan would like to modify the loan to lower the fixed interest rate and shorten the loan term, which would result in a higher monthly payment. Can we make these changes through a modification, and are any new disclosures or a new right of rescission notice required?
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Yes, we believe you may modify the terms of the existing loan to decrease the interest rate and shorten the loan term without falling within Regulation Z’s definition of a “refinancing” (which would require new disclosures under the TRID requirements). Also, the right of rescission does not apply to the modification of an existing dwelling-secured…
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We are looking for guidance on how to title a mortgage loan when a living trust is involved. For example, if Jen Test is the trustee of the Jen Test Revocable Living Trust dated 1/1/18 and the mortgaged property is held in the trust, how should this be reflected in the mortgage and deed? What if the property is not held in the trust, but the trust is a borrower on the loan? Also, our LaserPro documentation system requires that we input the names of any natural person beneficiaries of trust borrowers when a loan is made for personal, family, or household purpose. Would this apply to both living trusts and land trusts?
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The mortgagor described in the mortgage should be the party that holds title to the property. If the property is held in a living trust, the mortgagor would be listed in the name of the trust (e.g., “Jen Test Revocable Living Trust dated 1/1/18”), and the trustee would sign the mortgage on behalf of the…
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When originating a bridge loan secured by the borrower’s current principal dwelling and a new principal dwelling, when should the mortgages be recorded? Under Regulation Z, a bridge loan is subject to rescission when it is secured by the borrower’s current principal dwelling and the new dwelling being purchased. For example, if a loan closing is scheduled for June 14, the loan documents would have to be dated June 10 to ensure that the three-day rescission period has passed before we disburse the loan funds to purchase the new principal dwelling. But in that scenario, our loan origination system would produce a mortgage for the current dwelling and a mortgage for the new dwelling, each dated June 10. How can a borrower mortgage a property that they do not yet own?
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A borrower cannot mortgage a property they do not own, because they cannot convey its title to a lender when they do not own the property. We agree in this scenario that the promissory note and the mortgage on the current dwelling both should be dated and signed on June 10, to allow for the…
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We received an application for a mortgage loan refinancing. The applicant is the only person listed on the title to the property that will secure the loan, but her boyfriend also lives there. Does the boyfriend have a homestead right in the property? Also, should he be included on the Closing Disclosure and provided a notice of the right of rescission?
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No, the applicant’s boyfriend does not have a homestead right in the property, because he does not have an ownership interest in the property. The Illinois homestead exemption generally applies only to individuals with an ownership interest in their personal residence. Also, the applicant may waive her homestead rights without the boyfriend’s signature, since they…