We have a disagreement about right of recission. (Surely no one else ever has these.) Here's the situation: Borrower is closing on a loan for the purchase of a new home. (Not recindable, right?) However, the borrower's first home is being used as additional collateral in order to bring down the LTV below the need for PMI. The first home has been sold, but does not close for three weeks at which time the proceeds will be used to pay down the loan on the new home. Loan Officer argues that as soon as the loan papers are signed for the new home it is the borrower's primary residence and therefore is exempt from right of recission. I think that a security interest is being taken in the borrower's current primary residence in order to make the loan on the new home and recission applies. The question is: Which home is the principal residence of the borrower - the old home or the new home? Loan Officer says the borrower is moving into the new home the same day the loan closes and it is the borrower's principal residence on that day. So, the old home is no longer the principal residence as of the date of the loan and recission does not apply. I think that recission applies because the borrower is not yet living in the new residence when the loan is closed on the new house. Anyone have an opinion or can point me to some commentary or other narrative covering this scenario? Thanks.

It just happens that I am researching the right of rescission myself today. Here is what I found in answer to your question:

Commentary 226.23(a)3
When a consumer buys or builds a new dwelling that will become the consumer's principal dwelling within one year or upon completion of construction, the new dwelling is considered the principal dwelling if it secures the acquisition or construction loan.

However, it goes on to stay in 226.23(a)4
Special rule for principal dwelling. Not withstanding 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 recsission 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 the completion of construction, a consutruction 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.

My conclusion: Once you take home A as collateral it is rescindable!

Hope that helps!

Dear KenB, I agree with you.....I would want to do rescission. I think it would be dangerous in this case not to. Also, if in doubt it is safer to do rescission.