Collateral Grantor & Right Of Rescission
by Mary Beth Guard, BOL Guru
Question: If a collateral grantor doesn't sign note and/or receive benefit of proceeds, does the grantor still have to be given three days right of rescission?
Answer: There is a difference here between the way state law reads and the way Regulation Z reads. Under Regulation Z, the notice of right of rescission must be given to each consumer whose ownership interest in the principal dwelling is affected by the security interest. The Commentary makes it clear that the person pledging the residence would be entitled to a right of rescission, even if that person is not the borrower. Here's what it has to say:
"Rescission rules. For purposes of rescission under Secs. 226.15 and 226.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. Thus, if a security interest is taken in A's ownership interest in a house and that house is A's principal dwelling, A is a consumer for purposes of rescission, even if A is not liable, either primarily or secondarily, on the underlying consumer credit transaction."
The original version appeared in the January/February 2003 edition of the Oklahoma Bankers Association Compliance Informer.
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