If we give all parties who own and live in the property the right to rescind, is it wrong to give that right to others? Property owners who don't live in the property? Borrowers who live in the property but don't own it?

THE REG STATES THE RESCESSION MUST BE GIVEN TO EACH PERSON WITH AN OWNERSHIP INTEREST ....IF YOU HAVE ANY OWNERSHIP THEN YOU SHOULD GET A RESCESSION. IF THE PERSON DOES NOT OWN THE PROPERTY THEN THEY WOULD NOT BE ENTITLED TO RESCIND.

To qualify under rescission, it is a two question test. First the consumer must have ownership interest. Second, the dwelling in question must be the consumer's primary residence.

For example, If my wife and I own a home with her parents and my wife and I live in that home and her parents have a different primary residence, my wife and I have the ability tro rescind the transaction. Her parents do not. Even though they have ownership interest, it is not their primary dwelling.

To clarify - is it a violation of Reg Z to give rescission rights to parties that are not entitled to it under the regulation? What is violated if the lender gives rescission rights to someone who does not live in the property?

"Z" tells you who must receive it. I don't believe it would be a violation to give more people that option. The problem would be any harm to the valid owner/residents who can't secure a loan because someone not entitled to, rescinded and removed their borrowing ability. Also, I don't think there would be any privacy concerns but you'd have to see what data was given to whom.

Commentary paragraph 23(a)-2 explains that there is a two tier test. Tier one is a loan to a consumer secured by a consumer's principle dwelling. That gets Z coverage. Tier 2 is all consumers with an ownership interest. This paragraph explains that any consumer with an ownership interest -- even if not a signatory to the credit contract -- has the right to rescind. So the co-owners who don't live in the house and who didn't sign the loan may rescind.

Now that is what I originally thought, but Anon's post made sense. You didn't mention the the "consumer's principal dwelling". Would you say then that as long as one owner lives in the home rescission applies to owners?

Based on my days of rescission indoctrination at the Fed, as long as one consumer lives in the house as that consumer's principle dwelling, all consumers with an ownership interest in the house -- regardless of where they live -- have the right to rescind. Once the right is triggered by the consumer-borrower-resident, all consumer owners must be identified and given rescission notice. I suppose that the "reasoning" behind this is that all owners probably have some interest in the continued availability of the dwelling for the consumer living in it and therefore should have three days to think about the risk.

It is not often that I disagree with Lucy, but I have to hear. A technical reading of 226.23(a)(1) seems to support what she is saying: If RofR applies, all owners get the right to rescind. But let's read it carefully.

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 transactions described in paragraph (f) of this section. 47

Now read the definition of "consumer":

§226.2 Definitions and rules of construction.
(11) Consumer means a cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.

I had this very discussion with L. Ray Jackson and Alan Dombrow at the ABA Compliance School in Oklahoma last October. They pointed me to the definition of "consumer" and said "see, it doesn't apply to people that have an ownership interest without it also being their principal dwelling" (don't quote me, but that was the basic conversation).

David - I had that same understanding but not the actual citings to back it up. Thanks!

I, too, must reluctantly disagree with Lucy (never thought I'd see the day!)

OK, case in point. Assume my sister and I acquired title to our mother's home, with Mom retaining a lifetime tenancy. Sis and I don't live there. Sis and I decide to borrow against the real estate to finance improvements. All three of us sign the mortgage, but only Sis and I sign the note.

Because of the special definition of consumer for rescission purposes, Mom is a consumer here even though she was not extended any credit, and Mom can rescind. In fact, she's the only one who can rescind this loan, since she is the only person for whom the house is a primary residence.

All of which agrees nicely with the purpose of the right to rescind, which is to allow people to cool off before committing to liens on their primary residences.

What muddies the waters on this issue is the Commentary on Sections 226.15 and 226.23 which states: 2. Consumer. To be a consumer within the meaning of section 226.2 that perosn must at least have an ownership interest in the dwelling that is encumbered by the creditor's security interest.

That doesn't seem to muddy the water in my opinion. It says they "must at least have an ownership interest in the dwelling." That is only test 1 of 2 (the 2nd being the principal dwelling test).

Your post clarifies why this is such a difficult problem. When I worked at the Fed, we were told to give the answer I posted above. I still give that answer because it protects the lender. However, if I had missed someone when the loan was made, I would want you on the defense team!

Just as a clarification to my post, I agree that the regulatory intent is that the ROR be given to natural persons in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.

I have found the commentary I referenced lacking in clarity. Why mention step one without including step two? The original poster said: "If we give all parties who own and live in the property the right to rescind. Is it wrong to give the right to others?...Borrowers who live in the property but don't own it?"

I believe the commentary intended to address that narrow issue. Those who have the right to rescind must have an ownership interest in the dwelling. However, I think the comment adds ambiguity by not further stating that it must also be their principal dwelling and/or by not defining the specific issue it is addressing.