Does Right of Rescission apply on the parents?

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Question:

We have recently had a difference of opinion on a mortgage loan closing at our bank. The situation is a young couple apply jointly for the purchase of a new home. They did not have the down payment, so the joint applicant parents put a second mortgage on their home as additional collateral. The parents are not on the note, or any other documents other than an appraisal on their property and signing a mortgage on their dwelling. Does Right of Rescission apply on the parents?

Answer:

Yes, plus they get copies of the material disclosures. Look to the OSC to 226.23(b)(1) for the material disclosure requirement, and the OSC to 226.23(a)(1)(3) for the rescission requirement. The transaction is not a Residential Mortgage Transaction for the parents, and you are taking a security interest in their current primary dwelling, therefore the right to rescind applies.

First published on BankersOnline.com 2/13/06