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#2014822 - 05/18/15 09:15 PM Right of Rescission- Temporary Primary residence
Dodge Offline
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A customer is "temporarily" living in their rent house. They are using this house as collateral for a down payment, along with the new primary residence that they are purchasing.

I think Right of Rescission does apply since they customer are occupying the rent house at application as their primary. However, I'm getting push back.

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Lending Compliance
#2014826 - 05/18/15 09:37 PM Re: Right of Rescission- Temporary Primary residence Dodge
Kathleen O. Blanchard Offline

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As the father said in Moonstruck", "everything is temporary". If they own the property being pledged and have no other residence, it is their primary residence.

If you are too young, check IMDB for Moonstruck.
Last edited by Kathleen B; 05/19/15 02:20 PM. Reason: Fixed iPad typos
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#2014895 - 05/19/15 02:12 PM Re: Right of Rescission- Temporary Primary residence Dodge
Dan Persfull Offline
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The below sections of the regulation references the consumer's current primary residence. No where does it mention or exempt "temporary".

The rental property is owned and occupied by the consumer as their current primary residence. You will be hard pressed to justify waiving the ROR.

3. Principal dwelling. A consumer can only have one principal dwelling at a time. (But see comment 23(a)(1)–4.) A vacation or other second home would not be a principal dwelling. A transaction secured by a second home (such as a vacation home) that is not currently being used as the consumer's principal dwelling is not rescindable, even if the consumer intends to reside there in the future. When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan. In that case, the transaction secured by the new dwelling is a residential mortgage transaction and is not rescindable. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by B is a residential mortgage transaction. Dwelling, as defined in §1026.2, includes structures that are classified as personalty under state law. For example, a transaction secured by a mobile home, trailer, or houseboat used as the consumer's principal dwelling may be rescindable.

4. 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, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that 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 construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.
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#2014918 - 05/19/15 03:07 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Along these same lines, if the property owner's are living in the guest house and the main house is a construction loan, would a ROR be in order? The appraisal does not show any furniture in the newly constructed main house, but there is definitely a bed in the guest house. If I use the "where you lay your head" clue, they are in the guest house, so kind of wondering about this one.

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#2014924 - 05/19/15 03:14 PM Re: Right of Rescission- Temporary Primary residence Dodge
Skittles Offline
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Yes - if they are living on the property then rescission would be required.
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#2014925 - 05/19/15 03:15 PM Re: Right of Rescission- Temporary Primary residence Dodge
Kathleen O. Blanchard Offline

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Is the lien on both the guest house and the main house? If yes, same result.
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#2014953 - 05/19/15 04:04 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Yes, that's what I was thinking too. Thanks to all.

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#2015317 - 05/20/15 09:16 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Ok, I'm getting some rather heated feed back already...they're saying because the guest house is part of the construction loan, there should be no ROR since the construction loan is temporary financing, and they are now converting to permanent financing? Kind of makes sense, but does that mean the guest house is not their principal dwelling?

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#2015318 - 05/20/15 09:19 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Yes, Kathleen, the lien is on both the guest house and the main house, but they are both in the construction loan to begin with. Apparently, they moved into the guest house when it was completed, while the main house underwent construction--all this prior to permanent financing.

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#2015319 - 05/20/15 09:23 PM Re: Right of Rescission- Temporary Primary residence Dodge
Skittles Offline
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There is no 'out' on rescission for temporary financing. A lien is a lien.
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#2015325 - 05/20/15 09:30 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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Just to back Skittles up, it seems what they're really trying to invoke is the RMT exemption, but they would need to look at:

4. 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, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that 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 construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.
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#2015327 - 05/20/15 09:33 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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The guest house may have been part of the original construction loan (and not their primary at that time), but i wouldn't want to make the RMT exemption argument now, with the borrowers living in the now-completed guest home.
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#2015329 - 05/20/15 09:48 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Sorry, not familiar with RMT acronym?

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#2015330 - 05/20/15 09:53 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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OK
residential mortgage transaction
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#2015331 - 05/20/15 09:55 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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Your folks are probably quoting this:

(f) Exempt transactions. The right to rescind does not apply to the following:

(1) A residential mortgage transaction.

(And from the definitions of Reg. Z)

(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.

But as everyone has said, and with the parts of the commentary quoted, i don't think that flies in your scenario.
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#2015339 - 05/20/15 10:17 PM Re: Right of Rescission- Temporary Primary residence Dodge
Combustible Offline
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Me either. Now onward we go to convincing the powers that be

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#2015433 - 05/21/15 03:13 PM Re: Right of Rescission- Temporary Primary residence Dodge
Dan Persfull Offline
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the lien is on both the guest house and the main house, but they are both in the construction loan to begin with. Apparently, they moved into the guest house when it was completed, while the main house underwent construction--all this prior to permanent financing.

If I'm reading this correctly both the primary and guest house are being constructed under the same construction loan. The guest house was completed first and the borrower moved into it while the primary's construction is being completed.

The conversion of a construction loan to permanent financing is a RMT exempt from rescission. The fact the consumer moved into the residence prior to converting the construction loan to permanent financing does not IMO negate the RMT designation.
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#2015439 - 05/21/15 03:27 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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Dan, i just can't get around the language in the special rule that you (and I) quoted. A construction loan (RMT) that was also secured by the borrower's current primary residence would lose its RMT exemption, right? I guess i just don't see how this is different. The guest home was not their primary residence at the time of the initial construction loan, so no rescission. But now it is, so i can't get away from the special rule quoted above. Just throwing it out there....i'm willing to listen.
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#2015489 - 05/21/15 05:15 PM Re: Right of Rescission- Temporary Primary residence Dodge
Dan Persfull Offline
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The special rule applies when the consumer's current primary residence is being taken as collateral for the construction or purchase of their new primary residence.

When converting a construction loan to permanent financing a lien has already been placed on the property and Reg. Z gives this conversion a "special" exemption from rescission under the definition of a RMT. Even if there is cash back to the consumer in the conversion it is still defined as a RMT and exempt from rescission.

This transaction (even though the consumer moved in ahead of time) meets the definition of a RMT and is exempt from rescission. You are still converting a construction loan to permanent financing.
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#2015528 - 05/21/15 06:59 PM Re: Right of Rescission- Temporary Primary residence Dodge
RR Joker Offline
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I agree with Dan. The guest house didn't exist until the construction loan was made and it was built. It wasn't a 'current PR' at the on-set.
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#2015529 - 05/21/15 07:02 PM Re: Right of Rescission- Temporary Primary residence Dodge
Kathleen O. Blanchard Offline

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Yes, as this story evolved, the picture changed. The guest house and main house are part of construction and thus no ROR.

Full descriptions of the transaction and timelines are key to knowing what is happening.
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#2015536 - 05/21/15 07:08 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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I think what might be giving me problems on this is that i think of the permanent loan that replaces the construction only loan as still being, at least technically, a "purchase" of the home (after all, the commentary gives it RMT status). Therefore, the "special rule" about having 2 primary residences wants to kick in for me.
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#2015539 - 05/21/15 07:10 PM Re: Right of Rescission- Temporary Primary residence Dodge
RR Joker Offline
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Where's any new money to rescind? It's still the same ole construction loan you started out with.
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#2015540 - 05/21/15 07:11 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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Does the perm loan still count as "acquiring" the home or no?
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#2015541 - 05/21/15 07:13 PM Re: Right of Rescission- Temporary Primary residence Dodge
raitchjay Online
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There is no new money......but there was no current primary residence to be encumbered with the first loan. Now there is.

Like i said, i guess i need to know if the perm loan counts as "acquiring" the home or not. If it does, then it seems to me the special rule applies. If it doesn't, then i'm wrong.
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