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#2243500 - 10/02/20 12:42 PM HELOC and Right of Rescission
Couples Offline
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Posts: 280
The Igloo
We have a customer that had HELOC #1- a $100,000 HELOC and the draw period of HELOC#1 has expired and the balance of $50,000 is now in principal and interest repayment with 120 payments remaining. He received a new HELOC #2 in the same amount of $100,000. HELOC #1's $50,000 balance was paid off with HELOC #2 and the customer has a new 10 year draw period with an available credit amount of $50,000 ($50,000 principal disbursed at closing to pay off and close HELOC #1). The rescission notice supplied to the customer was the one indicating we were "establishing an open-end" credit account. I am understanding that to be that the entire amount of the HELOC #2, $100,000 is rescindable. I am questioning if we should have used the rescission notice stating that we are increasing the amount of security interest and if they cancel, that only applies to the increase in the existing security interest.

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#2243501 - 10/02/20 12:43 PM Re: HELOC and Right of Rescission Couples
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,659
Galveston, TX
No - you used the correct form as you established a whole new HELOC plan and did not increase the credit limit on the existing loan.
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#2243502 - 10/02/20 01:00 PM Re: HELOC and Right of Rescission Couples
Couples Offline
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Thank you! However, on the flip side. We had a different customer that had HELOC #1 in the amount of $400,000 with 120 payments remaining. He received HELOC #2 in the amount of $500,000. At closing and after the rescission period, HELOC #1's balance of $220,000 was paid and the loan closed off via principal disbursement from HELOC#2. However the rescission notice we used was "if you cancel the increase in the security, your cancellation will apply only to the increase in the amount of the security interest."

Is this the correct notice?
Last edited by Couples; 10/02/20 01:12 PM.
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#2243503 - 10/02/20 01:32 PM Re: HELOC and Right of Rescission Couples
Couples Offline
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I am getting myself confused. 1026.23f (2) A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer's principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.

In both cases we "refinanced" existing loans but used two different rescission notices. Which one is correct? Based on the part of the Reg in the paragraph above, both of these loans seem to fit into this category.

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#2243504 - 10/02/20 01:48 PM Re: HELOC and Right of Rescission Couples
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,659
Galveston, TX
There is no refinancing exception in the open-end rules - you need to be looking at 1026.15 and not 1026.23.

A new open-end plan means the whole new transaction is rescindable.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2243507 - 10/02/20 02:01 PM Re: HELOC and Right of Rescission Couples
Couples Offline
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Posts: 280
The Igloo
Oh my! That helps for the HELOCs. Thank you!

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