I have a situation where a customer has used most of their money to build their new home. They only need about $5000 to complete their home and move in. They want to finance about 140,000 using their new home they have built as collateral. They are going to use $5000 to finish home and $135,000 to help daughter in school. They also have another home that they are living in at the present that they have not sold yet.

So here is my question. This "new" home they just built and would be moving into is going to be their primary residence in 60 days. It is 90% complete when they have come to us wanting to refinance the new home built and use this money. Would we need to do a Right of Recission? My first instinct on reading the regs is to say yes, however we have had another compliance officer with another institution to tell us no "because we are not paying off their home they are living in now (original home that they are selling)". I am not certain what that has to do with obtaining the ROR?

Can you please shed any light on this confused brain of mine?
Thanks a bunch!

My first thought is if you are going to refinance the house they built and if they are NOT living in it as their princ residence then no right of rescission is needed.

Even if they will be living in the house within the next 60 days as their primary residence?

It is not yet their primary residence. RofR is not required.

Refer to the commentary on REG Z. It says this:
"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 (caps are mine). In that case, the transaction secured by the new dwelling is a residential mortgage transaction and is not rescindable."
Let's say the $5,000 purchase money takes precendence over the $135,000 refinance. If so, the purchase money makes the transaction a residential mortgage transaction and is therefore not rescindable.
Let's say the $135,000 cash out refinance takes precedence over the $5,000 purchase money. If so, it is a refinace of a residence which is not at this time their primary residence so it is not rescindable.
It looks to me that either way you categorize the funds it is not rescindable. It is secured by the new home but if it is purchase money it is not rescindable and if it is a refinance and not the primary it is not rescindable.
What if the allotment of funds does not matter? Then you either have a primary construction purchase money or a non-primary refinance - neither of which are rescindable.
What does a BOL GURU have to say about my logic?