Right of Rescission
The following article will cover all aspects of the Right of Rescission including: What is the Right of Rescission, How does the Right of Rescission work, Why is the Right of Rescission important and the benefits of the Right of Rescission.
What is the definition of the Right of Rescission?
The Truth in Lending Act (TILA) gives a borrower three days after closing to cancel a home equity loan or line of credit with a new lender, or to terminate a refinance transaction with a lender other than the present mortgagee. The right comes with no strings attached, and the lender must give up its claim to the property and return all expenses within 20 days of invoking the rescission right.
The right of rescission only applies to mortgage refinancing. It is not applicable to new home purchases. If a borrower wants to cancel a loan, they must do so by midnight on the third day after the refinancing is completed, and they must have received a mandatory Truth in Lending disclosure from the lender as well as two copies of a notification informing them of their right to rescind.
How does the Right of Rescission work?
Consumers do not have a formal way to exercise their right of rescission under the TILA. The lender, on the other hand, is required to give the borrower notice of the right to rescind, and that notice should contain the lender’s method for canceling a transaction. If it does not, the borrower must make their intention to cancel the loan apparent in writing within the three-day period.
Rescission rights are not available in all mortgage deals. Only home equity loans, home equity lines of credit, and refinances of existing mortgages with a lender other than the present mortgagee are subject to the right of rescission. A mortgage for the acquisition of a home, a refinance transaction with an existing lender, a state agency mortgage, or a mortgage on a second home or investment property do not have a right of rescission.
Borrowers must also establish that the notice was issued during the correct time frame, therefore they must ensure that they can document the time the notice was sent.
Why is the Right of Rescission important?
The TILA protects consumers from unfair and misleading credit billing and credit card activities. It mandates lenders to give borrowers with appropriate loan information as well as the opportunity to cancel loans, among other things. The right of rescission was established to safeguard consumers from predatory lenders by providing a cooling-off period and the opportunity to change their minds.
What are the benefits to the Right of Rescission?
The right of rescission, established by the Truth in Lending Act (TILA), permits a borrower to cancel a home equity loan, line of credit, or refinance with a new lender other than the present mortgagee within three days of closing. The right of rescission is granted with no conditions attached. The right of rescission was created to protect consumers from unfair and erroneous credit invoicing and credit card practices. Borrowers must be given notice of their ability to cancel the agreement.
Right of Rescission and Refinancing
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Financial Consultant and Author