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#2181474 - 06/12/18 03:07 PM Right of Rescission
JMCBT Offline
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Registered: 02/10/17
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We have a pending construction line of credit that will be secured by both the current primary residence, as well as the to be constructed residence. In addition, funds will be disbursed to purchase the lot as well as to refinance the current primary residence. My question is will right of rescission apply to the entire amount or only to the refinance amount? The title company has set closing for Thursday and hopes to disburse the funds for their fees as well as the purchase lot funds. Any guidance?

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#2181481 - 06/12/18 03:19 PM Re: Right of Rescission [Re: JMCBT]
BeechFlyboy Offline
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Are you the creditor on the current primary residence loan that is being refinanced? If so, then that portion of this new line is not rescindable. But since the entire construction line is secured by the current primary residence, the remainder of the funds are rescindable, including the portion to fund the lot purchase. You won't be able to advance those funds until 3 business days have passed and you're reasonably certain the borrowers have not rescinded.
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#2181497 - 06/12/18 03:53 PM Re: Right of Rescission [Re: JMCBT]
Dan Persfull Offline
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Jim I have to disagree unless I'm misunderstanding the transaction.

They are refinancing the existing primary dwelling, advancing money to purchase a lot and setting up a construction loan all secured by the current primary dwelling and the dwelling to be constructed.

The whole transaction is rescindable and no funds can be advanced until the rescission period has expired.

If rescinded then the loan being refinanced would have to be reinstated as it was before the new transaction.
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#2181500 - 06/12/18 04:09 PM Re: Right of Rescission [Re: JMCBT]
BeechFlyboy Offline
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So it sounds like the only place where we are disagreeing is on whether the funds to refinance the existing primary dwelling are rescindable. I'm basing my opinion on 1026.23(f)(2). Help me understand why you believe that portion would also be rescindable. Of course, there is the stipulation that for 1026.23(f)(2) to apply, the lender has to be the original creditor on the loan being refinanced, which is why I asked my first question in my response above.
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#2181515 - 06/12/18 06:05 PM Re: Right of Rescission [Re: JMCBT]
rlcarey Offline
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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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#2181532 - 06/13/18 07:51 AM Re: Right of Rescission [Re: rlcarey]
BeechFlyboy Offline
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Originally Posted By rlcarey
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.
But...

4. New advances. The exemption in §1026.23(f)(2) applies only to refinancings (including consolidations) by the original creditor. The original creditor is the creditor to whom the written agreement was initially made payable. In a merger, consolidation or acquisition, the successor institution is considered the original creditor for purposes of the exemption in §1026.23(f)(2). If the refinancing involves a new advance of money, the amount of the new advance is rescindable. In determining whether there is a new advance, a creditor may rely on the amount financed, refinancing costs, and other figures stated in the latest Truth in Lending disclosures provided to the consumer and is not required to use, for example, more precise information that may only become available when the loan is closed.
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#2181539 - 06/13/18 08:29 AM Re: Right of Rescission [Re: JMCBT]
rlcarey Offline
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The current principal dwelling secures the whole transaction - not just the portion of the transaction that involves a partial refinance. That would like saying that I owed $50,000 on my house and I wanted to borrow $100,000 and get $50,000 in cash back. The whole transaction is rescindable, you would not pay off the existing loan until rescission expired. Focus on "any loan" and that there are additional funds, regardless of what all the funds might be used for.
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#2181628 - 06/13/18 01:14 PM Re: Right of Rescission [Re: JMCBT]
BeechFlyboy Offline
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We'll have to agree to disagree. Your comment is a clarification on whether a loan secured by an existing principal dwelling to purchase or construct a new principal dwelling is subject to rescission or not. In that context, if the loan is secured by the existing principal dwelling, this comment says it is rescindable. But this comment doesn't contemplate a loan where part of the loan is to refinance the existing principal dwelling and part for other purposes. That aspect is addressed by my provided comment above - 1026.23(f)(2)-2 - which clearly states that in a refinancing meeting specific standards with new money also advanced, only the advance of new money is resindable.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP
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#2181630 - 06/13/18 01:29 PM Re: Right of Rescission [Re: JMCBT]
rlcarey Offline
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OK - I see what you are saying - but what difference does it really make? They rescind and the whole transaction falls apart. It is not like you are going to immediately advance the funds for the refinance and then wait three days to advance the rest of the funds.You would however use a Model H-9.
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#2181637 - 06/13/18 01:58 PM Re: Right of Rescission [Re: JMCBT]
BeechFlyboy Offline
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If the refinance transaction is done as a line of credit, as stated by the original poster, then I absolutely could see the advance being made for the refinance immediately and then waiting 3 days to advance the rest. But the key question originally asked seemed to be whether the funds could be advanced immediately for the lot purchase and I think we are both in agreement that those funds would be subject to rescission and must wait until the rescission period has elapsed.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP
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#2181673 - 06/13/18 03:28 PM Re: Right of Rescission [Re: JMCBT]
RR Joker Offline
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It doesn't help the fact that regardless, the attorney can't disburse on the purchase of the lot which is what they were trying to accomplish.

We make SURE to notify all parties when dealing with bridge loans for this very reason. [especially any Realtors] I had one that raised pure CAIN about it and sadly, the borrower was a RE attorney and I feel somewhat certain he should have known it, but I can tell you it won't be happening again!
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#2181674 - 06/13/18 03:29 PM Re: Right of Rescission [Re: JMCBT]
RR Joker Offline
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Registered: 11/15/02
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Loc: The Swamp
{Now, if it were accomplished by a HELOC, my answer would be different}

ETA: No, it wouldn't...this isn't a RMT, just a lot purchase...never mind.


Edited by RR Joker (06/13/18 03:30 PM)
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#2181760 - 06/14/18 09:31 AM Re: Right of Rescission [Re: JMCBT]
Dan Persfull Offline
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Registered: 08/28/02
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Randy has defended my position and I stand by it.

Since the poster referred to a "line of credit" and most posters refer to multiple draw closed-end construction notes as a "line of credit" I assumed that is what they were referring to and not to an open-end line of credit defined by Reg. Z.

To paraphrase a comment made by Andy the other day, "If you ask the question in the correct manor you get a correct answer."

New closed-end construction transaction to be secured by the existing primary dwelling and the new primary dwelling to be constructed.

Refinance existing loan on primary dwelling (same lender) $150,000.
New Construction Loan plus lot purchase plus loan costs. $350,000
Total New Transaction $500,000

This total new transaction is rescindable. Using the proper rescission form of course.


If the lender paid off the existing loan (based on the premise that amount is not rescindable) before the new loan came out of rescission they would have to refund all costs paid by the consumer in relation to the new transaction, release the mortgage within 20 days and somehow properly reinstate the loan they paid off back to its original terms before being paid off.

If they did not pay off that loan and the new transaction was rescinded then they simply have to cancel the $500,000 transaction and refund all charges paid by the consumer. The original loan would remain as is since it was not paid off.
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The opinions expressed are mine and they are not to be taken as legal advice.

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