Customer is applying for a HELOC....purpose is to buy a new principal dwelling. She owns her current home free and clear and basically wants a low cost loan until her old home sells.

We may be taking both loans as collateral (existing and new primary dwelling)?

Can I call this a residential mortgage exempt from rescission since the money is being used to purchase her new home?

Thanks

6. Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, a credit plan or extension that is subject to Regulation Z and is secured by the equity in the consumer's current principal dwelling is subject to the right of rescission regardless of the purpose of that loan (for example, an advance to be used as a bridge loan). For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a loan to finance B and secured by A is subject to the right of rescission. Moreover, a loan secured by both A and B is, likewise, rescindable.

And yes an advance under a HELOC for a purchase of a residence is exempt from rescission. However, you must provide a notice that any future non-purchase advances are subject to rescission and wait the 3 days until any additional advances can be made. There should be a presumption that this HELOC will actually be used as a line in the future. You do not have to go back and check that it was.

So, if only the new principal residence is taken as collateral, follow Kathleen's advice (no rescission for purchase transaction but rescission for future advances); if both homes are taken as collateral, follow Jay's and provide rescission for both the purchase transaction and for future advances. Correct?

Customer is applying for a HELOC....purpose is to buy a new principal dwelling. She owns her current home free and clear and basically wants a low cost loan until her old home sells.

So you are using a HELOC (open-end credit) as a bridge loan. You may want to consider the following and document accordingly.

1026.2

(20) Open-end credit means consumer credit extended by a creditor under a plan in which:

(i) The creditor reasonably contemplates repeated transactions;

(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and

(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.


1026.35

(4) Evasion; open-end credit. In connection with credit secured by a consumer's principal dwelling that does not meet the definition of open-end credit in §1026.2(a)(20), a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of this section.