I am reviewing a second mortgage real estate file. The lender stated that ROR was not required because the loan was part of the initial construction funding. There was an initial construction loan completed and then the loan needed to be written into a first and second due to the loan principal and the fact that the first was being sold on the secondary market. The second was completed at our bank and we did not do the construction loan. I think that right of rescission should be done because the loan was rewritten. Any advice to what is correct is appreciated. Thanks!

If I understand what you tried to say is that your second was a partial take out of the original construction loan. If that is the case - no RofR is necessary as it would be part of the RMT.

Wow! What a quick answer! You completely understood was I was trying to say. Thanks for the clarification. Lucky for us the file is okay since no ROR was done. Yes, it is the financing to turn the construction loan into a permanent loan. I was interpreting the definition of the RMT to be only the initial construction loan.

If it will give you anymore comfort, the justification for my answer can be found in the commentary to Reg. Z at 226.2(a)(24) which is the definition of a RMT:

2. Lien status. The definition is not limited to first lien transactions. For example, a consumer might assume a paid-down first mortgage (or borrow part of the purchase price) and borrow the balance of the purchase price from a creditor who takes a second mortgage. The second mortgage transaction is a residential mortgage transaction if the dwelling purchased is the consumer's principal residence.


and then


4. Construction financing. If a transaction meets the definition of a residential mortgage transaction and the creditor chooses to disclose it as several transactions under §226.17(c)(6), each one is considered to be a residential mortgage transaction, even if different creditors are involved. For example:

ii. One creditor finances the initial construction of the consumer's principal dwelling and another creditor makes a loan to satisfy the construction loan and provide permanent financing. Both transactions are residential mortgage transactions.

Thank you!