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#528409 - 04/07/06 12:07 AM right of rescission-construction?
starfish Offline
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starfish
Joined: Jun 2003
Posts: 416
Seattle
We currently have a temporary construction loan to a borrower that is living in a rental until construction is complete. There is quite a bit of equity in the property and the borrower now needs money to pay the IRS. If we take a 2nd lien against the construction loan, would a right of rescission apply?

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#528410 - 04/07/06 02:56 AM Re: right of rescission-construction?
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
If the borrower does not live there, this is not the borrower's principal dwelling. RofR would not apply.
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David Dickinson
http://www.bankerscompliance.com

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#528411 - 04/07/06 03:30 PM Re: right of rescission-construction?
starfish Offline
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starfish
Joined: Jun 2003
Posts: 416
Seattle
Thank you.

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#528412 - 04/07/06 03:44 PM Re: right of rescission-construction?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
I might advise the more conservative approach on this one since the additional money is not part of the RMT and they are separate transactions.

From the OSC: 23(a)(1)(3)

When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan.

and 23(f)

3. Combined-purpose transaction. A loan to acquire a principal dwelling and make improvements to that dwelling is exempt if treated as one transaction. If, on the other hand, the loan for the acquisition of the principal dwelling and the subsequent advances for improvements are treated as more than one transaction, then only the transaction that finances the acquisition of that dwelling is exempt.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#528413 - 04/08/06 11:09 AM Re: right of rescission-construction?
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
I thought of the 23(a)(1)(3) commentary, but I don't feel this is the intent of the comment.

I can't argue with Dan - it is a conservative approach and you can't get hurt that way.
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David Dickinson
http://www.bankerscompliance.com

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