EXERCISING YOUR RIGHT OF RESCISSION

Article courtesy of Realtor.com

If you are refinancing your home, as you go through the loan-signing process, you will be instructed that you have three days to change your mind. This is called the right of rescission, and it is guaranteed by the Federal Truth in Lending Act as a consumer protection. The three-day period is meant to let the borrower think over the loan or home-equity line of credit and stop the process if necessary. Changing or altering the terms of a loan is a major life decision, and this cooling-off period gives consumers a little time to think it through.

Mortgage

The right of rescission does not apply to all types of loans. Borrowers may exercise the right to cancel home-equity loans, home-equity lines of credit and refinances of existing mortgages in which the transaction is not performed by the lender who holds the current mortgage. The right of rescission does not apply to a mortgage for the purchase of a home, a refinance transaction with the existing lender, state-agency mortgages, or loans on second homes or investment properties.

If your loan is covered by the Truth in Lending Act, you have three days to change your mind and walk away from the deal. You cannot opt out of this arrangement; there’s a three-day window even if you do not plan to change your mind. During this period, your creditor should not pay out the loan. If you do rescind the loan, the lender has 20 days to abandon any claim to your property as collateral. Any fees that were paid must be refunded. The law is not influenced by the type of home you have: The right of rescission applies whether you have a condominium or a single-family dwelling.

If you plan to rescind a loan, you must put your intentions in writing. Your loan documents will explain how to exercise your right and where to send the rescission notice. To ensure that your papers reach their destination in a timely manner, and to ensure that you have proof of on-time delivery, you should send your letter of rescission by registered mail. The letter must be mailed before the deadline. The three days start on the first day after you sign your loan documents. Saturdays count but not Sundays or holidays.

If you are uncertain about how to rescind a loan, you can reach out to the mortgage originator to ask about the procedure. Deciding to rescind the loan is your personal decision, and you do not have to provide any reasons. As long as your loan falls under the Truth in Lending Act, no one can compel you to go forward with the agreement.

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