We closed a 1st mortgage with a simultaneous 2nd HELOC on a purchase transaction. Both loans were used to purchase borrower's primary residence. The closer failed to enter the 3rd business day (date) on the RoR form for the HELOC. Our investor indicates we have to give the borrower another RoR that is complete (in essence give him another 3 days). The borrower has acknowledged verbally that he has received this 2nd RoR; however, he has not returned this document to us? What should we do? Tell him he cannot make any future advances?

If I am thinking right, you could be screwed. If you didn't give them RoR at closing then they have up to 3 years to rescind the transaction if they wanted to be mean about it.

The initial transaction (advance) is not rescindable. Your options are to provide a new ROR and not allow any subsequent advances until its expiration date, or provide a ROR for each subsequent advance as they are requested.

There is no regulatory requirement that the borrower acknowledge receipt of the rescission form or that they acknowledge they did not rescind.

Isn't there a signature line on the RoR for the borrower to acknowledge receipt? As it stands, the 2nd 3 days has already passed. I am telling the branch that they need to drive over there and have him sign the rescission. They wanted to tell him we would call the note due, which I told them was not an option. The investor won't accept this loan until we get his signature on the 2nd RoR.

Just so I understand, the initial advance is not rescindable because it is part of the home purchase?
But subsequent advances are rescindable?

Bear with me, I'm new...So if we provide the ROR notice at the closing, even though in this case that first advance is not rescindable, we'll be covered on all subsequent advances?

Um, aren't purchase transactions exempt for both primary and the HELOC? Unless they used their old house to purchase the new one, I believe they are.

I'm not understanding why subsequent advances are rescindable when the first one isn't. The commentary for section 226.15(a)(2) says the creditor need not provide the right to rescind at the time of each credit extension made under an open-end credit plan secured by the consumer's principal dwelling "to the extent that the credit extended is in accordance with a previously established credit limit for the plan."

So if the first advance was not rescindable, and as long as they stay within their credit limit on subsequent advances, why are subsequent advances rescindable?

Dan - I need to join in this thread as this question has come up for us again. Back in 2004 at the ABA RCC in Chicago, in the FDIC's regulator breakout, one of the examiners stated that it was his opinion since the transaction was part of a RMT that he did not feel that any future advances would be subject to ROR. None of the other examiners weighed in on that comment. Too bad those sessions are not recorded! So it appears he was under the same thought as the Anonymous poster prior to you.

I was doing some more research on a related issue and came across the following:

Section 125 of the Truth in Lending Act - Right of Rescission as to Certain Transactions

paragraph (e) This section does not apply to -

(1) a residential mortgage transaction as defined in section 103(w);

but I was more interested in:

(4) advances under a preexisting open end credit plan if a security interest has already been retained or acquired and such advances are in accordance with a previously established credit limit for such plan.

Wouldn't this cover the subsequent advances on the purchase money HELOC or am I reading more into this?

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