Topic: Right of Rescission (ROR)
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Our bank will be funding a real estate loan to pay off a contract for deed between two family members. Our borrower has lived in the subject property for the past eight years as her principal residence. Do we need to wait until the three-day right of rescission period has expired to disburse the loan funds?
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Yes, we believe your bank should wait until the borrower’s right to rescind the transaction has expired before dispersing the loan funds. Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. There is an exception to this…
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We are refinancing a closed-end purchase and home improvement loan, secured by the borrower’s principal dwelling. Does the right of rescission apply?
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No, a right of rescission does not apply to a refinancing by the original creditor for a closed-end loan already secured by the borrower’s principal dwelling — provided that no new money is advanced. However, if new money is advanced, the right of rescission applies to any amount exceeding the original loan’s unpaid principal balance,…
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We have a loan application for a second mortgage on the applicant’s personal residence to fund a business expansion. All funds will be used for the business. Does a right of rescission apply in this case? Should we use a Loan Estimate and Closing Disclosure?
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No, the right of rescission does not apply to a loan to expand a business, even if the loan is secured by the borrower’s residence, and you are not required to provide the borrower with a Loan Estimate or Closing Disclosure. An extension of credit primarily for a business purpose is entirely exempt from the…
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For the right of rescission purposes, are there still four legal holidays that still count as a business day if they fall on Sunday, even if we observe the holiday on a Monday?
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Yes, when calculating the three-business day rescission period, there are four federal holidays that may be counted as business days when observed on the preceding Friday or following Monday. For rescission purposes, “business day” means all calendar days except Sundays and specified legal public holidays. There are four federal legal holidays that occur on a…
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We have a customer who owns a five-unit apartment building and currently resides in one of the units. The customer is purchasing a new home to be their principal residence and will use the apartment building as collateral for the new home purchase. Does the right of rescission apply because the apartment building is the customer’s primary residence?
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Yes, we believe the right of rescission would apply in this case. Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. There is an exception to this rule for a residential mortgage transaction where a security interest…
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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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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…
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We have a borrower who is purchasing a new home, but we are also taking a security interest in their current principal dwelling as an abundance of caution. Does rescission apply in this case?
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Yes, we believe the right of rescission would apply in this case. Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. Therefore, we believe this loan would be subject to Regulation Z’s right of rescission. For resources…
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Does a business purpose loan that will be secured by the business owner’s primary residence require a right of rescission under Regulation Z?
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No, an extension of credit primarily for a business purpose is exempt from the Truth in Lending Act and Regulation Z — including their right of rescission requirements — regardless of the type of collateral securing the loan. For resources related to our guidance, please see: Truth in Lending Act, 15 USC 1603(1) (“This subchapter…
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A father and son co-signed on a HELOC two months ago. The father signed a right of rescission (ROR) notice but we failed to provide one to the son. We plan to send the son an ROR notice now. Is his rescission period three business days or three years?
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In our view, the son’s right of rescission now extends for three years. Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower gets a three-year rescission period. Neither the rule nor its official interpretations identify a specific time for delivering notice of the right to rescind. However, the rule…
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We have a home equity line of credit (HELOC) that was taken out jointly by a married couple. The couple is separated (not yet divorced), and the wife would like to refinance the HELOC. The husband is not on the deed to the house securing the HELOC. Does the husband need to sign the mortgage, right of rescission notice, Truth in Lending disclosures, or the homestead waiver? Is Illinois a community property state?
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No, Illinois is not a community property state. In this case, because the husband is not the borrower and is not on the title to the property securing the HELOC, we believe that his signature is required only regarding any waiver of his homestead rights. However, we do recommend checking with the secondary market purchaser…