Is a right of recission necessary for the following:

Refinance with new lender on current owner-occupied home to be demolished and replaced with new construction. This is a construction loan to perm. Will also be owner-occupied at completion. Loan is secured by this property.

Any insight is appreciated.

I would say it qualifies as a Residential Mortgage Transaction and would be exempt from the ROR.
You have to look carefully at 226.2(a)(24).

Be sure to read the commentary to this definition as well. It is one of the most well worn pages in my Regulatory manuals.

Now to your question. This is a tough one. You indicate the borrowers are giving a security interest in their current principal dwelling to build a new one. That sounds a lot like a bridge loan - which is subject to the RofR [see the Commentary to section 226.23(a)(1) #4].

However, if their current home is going to be demolished, where are they going to live during this time? Possibly you can avoid the whole RofR issue if they live somewhere else.

Where are they living the day the close the loan?

I'm following up for Cathy J.
The underwriting did not address the issue, let's say they are still living in the house to be demolished on the day the loan closes.