(a) Consumer's right to rescind. (1) In a credit
transaction in which a security interest is or will be retained or acquired
in a consumer's principal dwelling, each consumer whose ownership interest
is or will be subject to the security interest shall have the right to
rescind the transaction, except for transactions described in paragraph
(f) of this section.47
47 For purposes of this
section, the addition to an existing obligation of a security interest
in a consumer's principal dwelling is a transaction. The right of rescission
applies only to the addition of the security interest and not the existing
obligation. The creditor shall deliver the notice required by paragraph
(b) of this section but need not deliver new material disclosures. Delivery
of the required notice shall begin the rescission period.
(2) To exercise the right to rescind, the consumer
shall notify the creditor of the rescission by mail, telegram or other
means of written communication. Notice is considered given when mailed,
when filed for telegraphic transmission or, if sent by other means, when
delivered to the creditor's designated place of business.
(3) The consumer may exercise the right to
rescind until midnight of the third business day following consummation,
delivery of the notice required by paragraph (b) of this section, or delivery
of all material disclosures,48 whichever occurs last. If the
required notice or material disclosures are not delivered, the right to
rescind shall expire 3 years after consummation, upon transfer of all of
the consumer's interest in the property, or upon sale of the property,
whichever occurs first. In the case of certain administrative proceedings,
the rescission period shall be extended in accordance with section 125(f)
of the Act.
48 The term ``material
disclosures'' means the required disclosures of the annual percentage rate,
the finance charge, the amount financed, the total payments, the payment
schedule, and the disclosures and limitations referred to in Sec. 226.32
(c) and (d).
Effective 10/1/2008, footnote 48 is amended to read as follows:
48 The term "material disclosures" means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in Sec. Sec. 226.32(c) and (d) and 226.35(b)(2).
(4) When more than one consumer in a transaction
has the right to rescind, the exercise of the right by one consumer shall
be effective as to all consumers.
(b)(1) Notice of right to rescind. In a
transaction subject to rescission, a
creditor shall deliver two copies of the
notice of the right to rescind to each
consumer entitled to rescind (one copy
to each if the notice is delivered in
electronic form in accordance with the
consumer consent and other applicable
provisions of the E-Sign Act). The notice shall be on a separate document that identifies the transaction and shall
clearly and conspicuously disclose the following:
(i) The retention or acquisition of a security
interest in the consumer's principal dwelling.
(ii) The consumer's right to rescind the transaction.
(iii) How to exercise the right to rescind,
with a form for that purpose, designating the address of the creditor's
place of business.
(iv) The effects of rescission, as described
in paragraph (d) of this section.
(v) The date the rescission period expires.
(2) Proper form of notice. To satisfy the
disclosure requirements of paragraph (b)(1) of this section, the creditor
shall provide the appropriate model form in Appendix H of this part or
a substantially similar notice.
(c) Delay of creditor's performance. Unless
a consumer waives the right of rescission under paragraph (e) of this section,
no money shall be disbursed other than in escrow, no services shall be
performed and no materials delivered until the rescission period has expired
and the creditor is reasonably satisfied that the consumer has not rescinded.
(d) Effects of rescission. (1) When a consumer
rescinds a transaction, the security interest giving rise to the right
of rescission becomes void and the consumer shall not be liable for any
amount, including any finance charge.
(2) Within 20 calendar days after receipt
of a notice of rescission, the creditor shall return any money or property
that has been given to anyone in connection with the transaction and shall
take any action necessary to reflect the termination of the security interest.
(3) If the creditor has delivered any money
or property, the consumer may retain possession until the creditor has
met its obligation under paragraph (d)(2) of this section. When the creditor
has complied with that paragraph, the consumer shall tender the money or
property to the creditor or, where the latter would be impracticable or
inequitable, tender its reasonable value. At the consumer's option, tender
of property may be made at the location of the property or at the consumer's
residence. Tender of money must be made at the creditor's designated place
of business. If the creditor does not take possession of the money or property
within 20 calendar days after the consumer's tender, the consumer may keep
it without further obligation.
(4) The procedures outlined in paragraphs
(d) (2) and (3) of this section may be modified by court order.
(e) Consumer's waiver of right to rescind.
(1) The consumer may modify or waive the right to rescind if the consumer
determines that the extension of credit is needed to meet a bona fide personal
financial emergency. To modify or waive the right, the consumer shall give
the creditor a dated written statement that describes the emergency, specifically
modifies or waives the right to rescind, and bears the signature of all
the consumers entitled to rescind. Printed forms for this purpose are prohibited,
except as provided in paragraph (e)(2) of this section.
(2) The need of the consumer to obtain funds
immediately shall be regarded as a bona fide personal financial emergency
provided that the dwelling securing the extension of credit is located
in an area declared during June through September 1993, pursuant to 42
U.S.C. 5170, to be a major disaster area because of severe storms and flooding
in the Midwest. In this instance, creditors may use printed forms for the
consumer to waive the right to rescind. This exemption to paragraph (e)(1)
of this section shall expire one year from the date an area was declared
a major disaster.
(3) The consumer's need to obtain funds immediately
shall be regarded as a bona fide personal financial emergency provided
that the dwelling securing the extension of credit is located in an area
declared during June through September 1994 to be a major disaster area,
pursuant to 42 U.S.C. 5170, because of severe storms and flooding in the
South. In this instance, creditors may use printed forms for the consumer
to waive the right to rescind. This exemption to paragraph (e)(1) of this
section shall expire one year from the date an area was declared a major
disaster.
(4) The consumer's need to obtain funds immediately
shall be regarded as a bona fide personal financial emergency provided
that the dwelling securing the extension of credit is located in an area
declared during October 1994 to be a major disaster area, pursuant to 42
U.S.C. 5170, because of severe storms and flooding in Texas. In this instance,
creditors may use printed forms for the consumer to waive the right to
rescind. This exemption to paragraph (e)(1) of this section shall expire
one year from the date an area was declared a major disaster.
(f) Exempt transactions. The right to rescind
does not apply to the following:
(1) A residential mortgage transaction.
(2) A refinancing or consolidation by the
same creditor of an extension of credit already secured by the consumer's
principal dwelling. The right of rescission shall apply, however, to the
extent the new amount financed exceeds the unpaid principal balance, any
earned unpaid finance charge on the existing debt, and amounts attributed
solely to the costs of the refinancing or consolidation.
(3) A transaction in which a state agency
is a creditor.
(4) An advance, other than an initial advance,
in a series of advances or in a series of single-payment obligations that
is treated as a single transaction under Sec. 226.17(c)(6), if the notice
required by paragraph (b) of this section and all material disclosures
have been given to the consumer.
(5) A renewal of optional insurance premiums
that is not considered a refinancing under Sec. 226.20(a)(5).
(g) Tolerances for accuracy.--(1) One-half
of 1 percent tolerance. Except as provided in paragraphs (g)(2) and (h)(2)
of this section, the finance charge and other disclosures affected by the
finance charge (such as the amount financed and the annual percentage rate)
shall be considered accurate for purposes of this section if the disclosed
finance charge:
(i) is understated by no more than \1/2\ of
1 percent of the face amount of the note or $100, whichever is greater;
or
(ii) is greater than the amount required to
be disclosed.
(2) One percent tolerance. In a refinancing
of a residential mortgage transaction with a new creditor (other than a
transaction covered by Sec. 226.32), if there is no new advance and no
consolidation of existing loans, the finance charge and other disclosures
affected by the finance charge (such as the amount financed and the annual
percentage rate) shall be considered accurate for purposes of this section
if the disclosed finance charge:
(i) is understated by no more than 1 percent
of the face amount of the note or $100, whichever is greater; or
(ii) is greater than the amount required to
be disclosed.
(h) Special rules for foreclosures--(1) Right
to rescind. After the initiation of foreclosure on the consumer's principal
dwelling that secures the credit obligation, the consumer shall have the
right to rescind the transaction if:
(i) A mortgage broker fee that should have
been included in the finance charge was not included; or
(ii) The creditor did not provide the properly
completed appropriate model form in Appendix H of this part, or a substantially
similar notice of rescission.
(2) Tolerance for disclosures. After the initiation
of foreclosure on the consumer's principal dwelling that secures the credit
obligation, the finance charge and other disclosures affected by the finance
charge (such as the amount financed and the annual percentage rate) shall
be considered accurate for purposes of this section if the disclosed finance
charge:
(i) is understated by no more than $35; or
(ii) is greater than the amount required to
be disclosed.
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