Right Of Rescission & Home Improvement Loans

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Question:

We will soon be launching a home improvement product for which we will be taking security interest in items that will likely become fixtures, i.e., windows, furnaces, etc. We will not be taking any traditional mortgage in connection with this product. Is the right of rescission triggered by taking such interests? Also, is there any concern with the application of federal flood regulations?

Answer:

If you are taking a security interest in household goods and not in the real estate, the right of rescission does not arise. Neither does the flood question. However, you do need to look at the household goods rule, 227.13(d) which prohibits taking a security interest in household goods unless the loan was used to purchase the goods securing the loan.

First published on BankersOnline.com 04/21/03