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#1515913 - 03/01/11 05:41 PM Rescission question - combined purpose
#12 Offline
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Commentary to Reg Z (226.23(f)) states:

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.

I have a lender that is doing a purchase money 2nd lien loan, which is exempt from rescision. Does the above from the OSC cover only home improvements, or is that just an example?

For example, if the customer wants the purchase money 2nd, but also wants to add extra money to pay off some credit cards, would the addition of the extra money make this a rescindable loan? I think it would not. It would still qualify as an RMT and be exempt from rescission.

Any thoughts?
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#1516234 - 03/02/11 02:33 PM Re: Rescission question - combined purpose #12
Deena Offline
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I agree with you - if the additional money to pay off the credit cards is included in the loan for the purchase, it's still a RMT and not subject to rescission.
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#1516239 - 03/02/11 02:40 PM Re: Rescission question - combined purpose Deena
Dan Persfull Offline
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If your 2nd lien loan is a purchase money HELOC only the portion specifically used for the RMT would be exempt and you would have to refer to 226.15 instead of 226.23.
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#1516245 - 03/02/11 02:46 PM Re: Rescission question - combined purpose Dan Persfull
RR Joker Offline
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Agree with Dan. Usually, the way this works is funds for the purchase are released...funds for the other purpose are held until rescission is complete.
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#1516280 - 03/02/11 03:38 PM Re: Rescission question - combined purpose RR Joker
#12 Offline
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Not a HELOC, we're talking closed end loan. Does the amount of funds used for purchase vs other uses matter? For example $25,000 closed end loan, $10,000 towards the purchase of a primary residence and $15,000 to buy a car. I don't think this would happen, I'm just curious.

Thanks again for everyone's thoughts.
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#1516336 - 03/02/11 04:32 PM Re: Rescission question - combined purpose #12
Dan Persfull Offline
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Bloomington, IN
For a closed-end loan your assessment and Regulatory cite is correct. I just wanted to be sure you were aware of the HELOC limitation since you did not identify the 2nd lien being closed-end or open-end credit.
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#1516364 - 03/02/11 04:51 PM Re: Rescission question - combined purpose Dan Persfull
#12 Offline
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Thanks Dan, and everyone else! It's nice to be able to get confirmation on what you think you know! smile
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