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ROR Required When Advancing Funds to Pay Debt?

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Question: 
Is the Right of Rescission required when refinancing a real estate loan secured by 160 acre farm, and advancing funds to pay off credit card debt once loan originated?
Answer: 

Paying off consumer credit card debt is assuredly a consumer purpose transaction. So, if the farm includes the consumer's primary dwelling, the Right to Rescind under section 1026.23 will apply.

However, if the credit card debt in question is carried in the name of the farm as business credit, and particularly if the farm is operated as an entity (LLC, corporation, partnership, etc.), it would be reasonable to characterize the real estate loan as a commercial or agricultural purpose loan, in which case the right of rescission would not apply, even if the acreage includes the farm owner's primary dwelling.

First published on 04/21/2014

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