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#1643910 - 12/28/11 07:17 PM rescission on spouse
LSmith Offline
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A woman makes on loan last year on her residence. Loan is rescinded and disbursed. Woman gets married. We are getting husband to sign note and deed of trust on renewal. Do we have to give husband right of rescission?

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#1643940 - 12/28/11 08:01 PM Re: rescission on spouse LSmith
VRV Offline
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If she did not transfer any ownership rights to the property by deed, then he is not entitled to the right to rescind. Reg. Z Commentary Sect. 226.15(a)(4) states that "To be a consumer within the meaning of Section 226.2, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor's security interest..." The Commentary to Reg. Z Section 226.2(a)(11) explicitly states that "An ownership interest does not include, for example, leaseholds or inchoate rights, such as dower."

Therefore, if the wife still holds title to the property in her name alone, the husband is not entitled to the right of rescission even if he obtained dower or homestead rights when they got married.

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#1643952 - 12/28/11 08:22 PM Re: rescission on spouse LSmith
LSmith Offline
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Thanks

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#1644044 - 12/29/11 01:44 AM Re: rescission on spouse LSmith
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Not true in a marital property state, or to my knowledge in a dower state, ie: Iowa. If, by marriage the husband obtained rights to half of his wife's property, then he does get ROR. We work extensively in Iowa and WI and have always given ROR to non-borrowing spouses.

Additionally, a number of investors will require ROR be given to the spouse. That's a case of their ball, their field, their rules.

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#1644059 - 12/29/11 12:55 PM Re: rescission on spouse Truffle Royale
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MI also falls into that category. We ALWAYS give non-borrowing spouse ROR. I have a list of each state and their dower/homestead requirements. PM me if you would like it!
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#1644200 - 12/29/11 04:28 PM Re: rescission on spouse TINKerBell
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My bank does not do business in community property states so I'm not familiar with those rules, but I can see where marriage alone in those states could constitute the husband now having an ownership interest in the property, which would entitle him to rescission rights.

However, for non-community property states (and I'm sure MI is not a community property state), marriage alone does not convey ownership, at least with respect to rescission rights under Reg. Z. In some non-community property states, marrying someone who owns property may entitle the non-owning spouse to dower or homestead rights in the property. But the Commentary to Reg. Z explicitly states that these types of rights do not constitute ownership interest that would entitle the spouse to rescission.

Now, of course, if an investor requires that the non-owning spouse be provided with a rescission notice, then you will need to comply with that requirement in order to sell your loan to them. But I have always worried about providing someone that wasn't entitled to rescission rights with a copy of the rescission notice. It seems to me that you could be opening yourself up to unncessary potential problems. For example, if the non-owning spouse is given the rescission notice and then decides to exercise the right to cancel the transaction, could the lender be at risk to the owning spouse if this action (and inability to close on the loan) then prevents them from getting the funds they wanted and causes them to miss out on some financial windfall or experience some financial loss? Could the lender be liable for the person's loss since the lender wasn't required by law to provide the non-owning spouse with rescission, and by doing so, they set up this situation that allows the non-owning spouse to derail everything?

I have no idea what the outcome of this sort of situation might be, but I've always recommended that the rescission notice only be provided to those persons who are enttiled to it. If there was some uncertainly about whether someone was entitled to it or not, I would err on the side of caution and provide it, but if someone's only interest in the property is dower, then the Reg. is clear that that does not convey rescission rights.

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#2182097 - 06/18/18 04:15 PM Re: rescission on spouse LSmith
Stephen McCall Offline
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Hi all, found this thread in the search function and wanted to bump it (rather than create a new one).

We have the example above where a person purchases a dwelling, then later they get married and refinance the property adding their spouse onto the loan as a co-borrower. In certain states, that co-borrower signing the security instrument does not ensure that they (spouse) has ownership interest in the property.

Can someone please confirm if I am interpreting that correctly?

And if that is correct, could anyone kindly point out other examples/scenarios where a husband and wife are jointly applying for a refinance of their primary residence in which the spouse would not have ownership interest in the property?

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#2182101 - 06/18/18 04:22 PM Re: rescission on spouse LSmith
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It is all a matter of State law. But that in theory is correct. Two things have to be present. It must be the consumer's principal dwelling and the consumer must have an ownership interest that is or will be subject to the security interest.
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#2182117 - 06/18/18 05:42 PM Re: rescission on spouse LSmith
RR Joker Offline
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And if that is correct, could anyone kindly point out other examples/scenarios where a husband and wife are jointly applying for a refinance of their primary residence in which the spouse would not have ownership interest in the property?

Examples:

It's not all that uncommon for one borrower to have ownership and another borrower not.
It's also not uncommon for the borrower to not hold and interest nor live in the property, but the non-borrowing owner does and therefore, earns the RTR the transaction.

As Randy points out, you have two ingredients that make up the RTR. It's your PR and you own it.
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#2182118 - 06/18/18 05:43 PM Re: rescission on spouse LSmith
RR Joker Offline
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[keep in mind I do not live in a community property state and my examples are representative of that, nor do they even speak specifically to 'spousal' borrowers, but to borrowers in general]
Last edited by RR Joker; 06/18/18 05:44 PM.
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#2182140 - 06/18/18 06:20 PM Re: rescission on spouse RR Joker
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Quote:
And if that is correct, could anyone kindly point out other examples/scenarios where a husband and wife are jointly applying for a refinance of their primary residence in which the spouse would not have ownership interest in the property?

Yup, one we often see across state lines is when the husband owns his own business. The homestead is titled in the wife's name only to protect it from seizure should the husband's business go belly up. They are both borrowers and it's their homestead but only Mrs. is on title. (use of husband/wife easier than 'spouse' could go either way)

Here's a state by state list that includes references to RoR.

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#2182141 - 06/18/18 06:24 PM Re: rescission on spouse LSmith
Stephen McCall Offline
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Thank you for the responses, everyone! This has helped to provide some valuable context. smile

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