We have ourselves all kinds of confused at the moment regarding ROR...

1026.23(a)(1) - In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for the exempt transactions. (consumer must have at least an ownership interest in the dwelling that is encumbered by the creditor's security interest)

Truth in Lending Act §1635(a) - in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction.

Credit staff attended a mortgage training recently and this is what the manual states -

Regulation Z gives the right to rescind to anyone whose ownership interest is his or her principal dwelling is subject to the risk of loss. Example: If a mortgage is taken in A's ownership interest in a home which is A's principal dwelling, A is entitled to rescind the transaction, even if A is not liable on the debt.

The Truth in Lending Act gives the right to rescind to any person who is an “obligor” on the underlying credit transaction, if that person’s principal dwelling secures the debt.

Please advise if these are correct -

1. Dad and Daughter are borrowers. Dad and Daughter own the dwelling. Dwelling is primary residence for Daughter only. Both Dad and Daughter have the right to rescind. Daughter has the right both under Reg Z and TILA. Dad under Reg Z because he jointly has an ownership in the dwelling.

2. Daughter is borrower and dwelling is her primary residence. Dad owns the home but it is not his primary residence. Only Daughter has the ROR under TILA.

3. Dad owns the dwelling and is the borrower. The dwelling is the Son’s primary residence. No ROR

4. Daughter is the borrower but does not live in the home. Dad owns the home and it is his primary residence. Dad has ROR.

5. Mom is the borrower. The dwelling is the primary residence for the Mom and two adult children. The two adult children own the home. Mom and the two children have ROR.

Unless there are State law requirements, such as marital rights, two things have to be present. You have an ownership interest and it is your primary dwelling.

1. Daughter
2. None
3. None
4. Dad
5. Children

So the training manual is incorrect. We don't have to follow what is in the Truth in Lending Act, we only have to comply with what was implemented in Regulation Z.

And with Regulation Z, if there are multiple owners of a dwelling, only those to which the dwelling is there primary dwelling actually have rescission rights.

Correct?

Under scenario 5, if Mom deeded the home to the kids but retained a life tenancy, Mom would also have ROR in those states that consider a life tenancy an interest in real estate.

When the Fed promulgated Regulation Z, it expanded the TILA provision on rescission rights to include other (non-borrowing) consumers whose ownership interest in their primary residence will be subject to the lien. So compliance with the Reg Z provision includes compliance with the TILA provision. It's not a matter of complying with one and not the other.

I promise I am not trying to be difficult. I can't seem to marry what is in TILA and what is in Reg Z.

In Reg Z you don't have to be a borrower to have ROR. In TILA you don't have to have an ownership interest.

I gave scenarios in #2 and #5 trying to apply both Reg Z and TILA, but according to Randy may answers were incorrect.

So do we give a ROR to someone who meets "Truth in Lending Act §1635(a) - in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction."?

I think you are really going into the weeds on this one. The Fed and now the CFPB has the interpretation rights for the Act. A literal reading of the Act without going back and pulling all of the Congressional intent when the Act or any amendments were passed when trying to interpret the intent of the Act is sometimes difficult.

Intent is to protect the principal dwelling that is owned by the consumer - the intent is not to protect a tenant that might be living in a house - regardless of the relationship of that person to the loan. The definition of a consumer for purposes of the right of rescission is clearly defined in 1026.2. There has to be an ownership interest in the property.

Official Interpretation

2(a)(11) Consumer

2. Rescission rules. For purposes of rescission under §§1026.15 and 1026.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. Thus, if a security interest is taken in A's ownership interest in a house and that house is A's principal dwelling, A is a consumer for purposes of rescission, even if A is not liable, either primarily or secondarily, on the underlying consumer credit transaction. An ownership interest does not include, for example, leaseholds or inchoate rights, such as dower.

Additionally, refer to 15 USC 1604:

(f) 1 Exemption authority

(1) In general

The Board may exempt, by regulation, from all or part of this subchapter any class of transactions, other than transactions involving any mortgage described in section 1602(aa) of this title, for which, in the determination of the Board, coverage under all or part of this subchapter does not provide a meaningful benefit to consumers in the form of useful information or protection.

(2) Factors for consideration

In determining which classes of transactions to exempt in whole or in part under paragraph (1), the Board shall consider the following factors and publish its rationale at the time a proposed exemption is published for comment:

(A) The amount of the loan and whether the disclosures, right of rescission, and other provisions provide a benefit to the consumers who are parties to such transactions, as determined by the Board.

I agree with Randy (and John) - focus on Reg Z and not the actual Act.

I like that - "going into the weeds"

I would not have done so except a respected nationwide compliance training company made it a point that we should be complying with what is stated in TILA also. A generous portion of our Credit staff was at that training and they were very concerned that we were not doing things correctly because we were not giving ROR under the TILA language.

Thanks to everyone for your help. Don't know what I'd do without BOL!

Sometimes the courts can get into the weeks, too. Possibly, the training company is aware of a court ruling that might be a creative interpretation of the relationship between TILA and Reg. Z. Even though a higher court might (someday) overturn that line of rulings, no bank wants to be the poster child in the meantime. Since you're confronted with "multiple versions of the Truth", this might be a good question to put to the bank's legal counsel. Acting on specific advice of counsel, you will be taking the most conservative position possible.