When Does Rescission Apply?

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Question:

Does rescission always apply to HELOCs, but not purchase money? What about a refinance of a mortgage loan with the same lender and no new money; would rescission apply?

Answer:

ROR is applicable for any consumer purpose loan where a security interest is taken in the consumer's primary residence. Review Regulation Z Section 1026.2 and its Commentary for the definition of a consumer.

Search Bankers' Threads using +HELOC +Purchase +Money as the search term and you will find all sorts of discussion. In a nut shell the advance that is used for the residential mortgage transaction (see Section 1026.2(a)(24) for the definition) is not subject to rescission but all subsequent advances are.

For the applicability of rescission to a refinancing by the same lender where no new money is advanced refer to the Commentary for Section 1026.23(f)(4).

First published on BankersOnline.com 2/14/11