Topic: Right of Rescission (ROR)
-
We closed on a mortgage loan refinancing on July 1, and the borrower asked us to lower the interest rate on July 5. We refused, and the borrower is threatening to rescind the transaction on the last day of the right of rescission period — July 6. If the borrower reapplies for the refinancing after rescinding, can we reject the customer’s application?
—
by
Yes, we believe that you may reject the customer’s application, which will require you to provide an appropriate adverse action notice. Regulation B does not prohibit a creditor from rejecting an applicant due to the applicant’s previous exercise of the right of rescission. Regulation B permits creditors to consider “any information obtained” in connection with…
-
Can you give me the list of disclosures I would need to perform a mortgage loan renewal for a closed-end balloon loan? Can we charge the customer for an appraisal? We are not advancing new money to the borrower.
—
by
We are not aware of any laws or regulations that require you to provide specific disclosures when renewing a mortgage loan (versus refinancing a mortgage loan, which would require new TILA and RESPA disclosures). We do recommend consulting with your bank counsel when creating the loan renewal agreement and any other legal documents. In addition,…
-
We have a loan secured by a first mortgage on a commercial property and a second mortgage on the borrowers’ primary residence. The second mortgage on the residence was added to the transaction as an abundance of caution. The proceeds of this loan will be used to pay off the borrowers’ personal debt. Do the TILA-RESPA integrated disclosure (TRID) disclosure requirements and the right of rescission apply in this case?
—
by
Yes, we believe the TILA-RESPA disclosure requirements and right of rescission would apply in this case, as discussed in more detail below. The TRID rules apply to most closed-end consumer credit transactions secured by real property. Regulation Z defines the phrase “consumer credit” to mean credit offered or extended to a consumer primarily for personal,…
-
We have heard the Illinois Supreme Court recently ruled that a land trustee that executes a mortgage is entitled to receive the TILA disclosures, including the notice of right to rescind for refinancings. Is this correct? Also, should these loans to trusts be reported on our Home Mortgage Disclosure Act loan application register (HMDA LAR) based on this decision?
—
by
Yes, the Illinois Supreme Court held that the trustee of a land trust for residential property is covered by the Truth in Lending Act (TILA) and is entitled to receive TILA’s mandated disclosures and the right of rescission. The Court observed that Regulation Z expands TILA’s right of rescission to “a natural person in whose…
-
We have a residential loan with our bank that is being refinanced by our bank, and the three-day right of rescission (ROR) will apply to the refinancing. Can we collect interest on the original loan during the ROR period, as well as collect interest on the refinancing loan as of its closing date (which would mean collecting interest for both loans during the ROR period)? The funds for the refinancing loan would not be disbursed until after the ROR period expires.
—
by
We believe this practice would be highly unusual and quite possibly could violate both loan agreements, as well as raise questions under both Illinois law and the federal UDAAP prohibitions. The crux of the problem is that interest begins accruing on the second loan before the second loan’s proceeds have been disbursed. Charging this interest…
-
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.
—
by
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…