How can the Right of Rescission Protect Me?
The Right of Rescission is a protection given to borrowers under the Truth in Lending Act. This right gives borrowers of certain types of loans the opportunity to cancel their loan within 3 business days of signing the loan documents and qualify to receive a full refund of any monies paid. In your rush to refinance your home or to take out a personal loan, using your home as collateral for the loan, you may have second thoughts or want more time to shop for other financing options. This act gives you extra time to carefully consider your new loan. Sometimes called a “cooling off” period, it allows you those 3 extra days to be certain the loan is exactly what you expected.
In order for the loan to fall under the Right of Rescission protection laws, the loan must be to refinance a loan on your home with a new lender, or a refinance in which you will take cash out, over and above paying off the old or previous mortgage. The right of rescission does not apply in all cases where your home is used as collateral for the loan. You do not have the right of rescission when: you apply for a loan to purchase or build your principal home; you consolidate or refinance with the same lender who already holds the mortgage on your home when no additional funds are borrowed, or when a state agency is the creditor for your loan. If you are increasing the size of your loan, refinancing with a new lender or taking out a loan against your home, you can cancel the entire transaction within the 3 day rescission period. Whether your home is a condominium, a mobile home, or a house boat, as long as it is your principal residence, the right of rescission will apply. The right applies to certain installment loans, in which you borrow a fixed amount and repay the debt on an agreed payment schedule as well as to home equity credit lines.
You have the right to “rescind” or cancel your credit transaction until midnight of the third business day after the loan documents are signed. The mortgage or Deed of Trust will not be recorded until the 3 day waiting period is over. The first day is considered the day you sign the credit contract. You will receive a Truth in Lending disclosure form containing certain important disclosures about the credit contract. These disclosures explain the key terms of the credit being offered: the annual percentage rate; the finance charge; the amount financed; the total of payments; and the payment schedule. You will be given two copies of a notice explaining your right to rescind. For rescission purposes, business days include Saturdays, but not Sundays or legal public holidays.
During this waiting period, your lender will not take any action on your transaction, nor will you receive the proceeds from the loan until after the 3 day period has expired. If you do decide to exercise your right of rescission and cancel the loan, you will be required to notify the lender, in writing, that you are canceling the contract. You may use the form provided by the lender, or by writing a letter or telegram. Whichever form of written notice you use, make sure it is delivered, mailed, or filed for telegraphic transmission before midnight of the third business day. Keep in mind that to qualify, you must follow the written procedures and not just notify the lender by a telephone call or a visit to the lender.
Within 20 calendar days after receipt of the notice of rescission, your lender will be required to return any money or property that was given to anyone in connection with the loan and will be required to take any action necessary to reflect the termination of the security interest.
Will the appraisal fee and all title and escrow fees paid also be refunded to me if I rescind my refinance mortgage?
The Federal Truth in Lending Act guarantees your right to a refund of ALL fees you have paid in advance of obtaining the refinance mortgage if you rescind the loan. These fees include the appraisal fee, title search fee, escrow fees, any inspection fees.
Copyright © 2002, 2004 Sandy Gadow. This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.