Written By: Glenn Michaels, Op-Ed Writer
When a borrower refinances their mortgages, they are given a form called Right of Rescission at the closing table. This form gives the borrower three (3) days to change their mind and to cancel the transaction. Most mortgage people know the form but know very little behind the rule. Here's an explanation of the Right of Rescission.
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What is the rescission period?
The three (3) day right of rescission, a part of the Truth in Lending Act was passed to protect consumers from unscrupulous lenders and financial sales professionals.
The rescission period allows the borrower to cancel the mortgage refinance, home equity line or home equity loan , second mortgage within three (3) business days after closing. Eligible rescission days are all business days EXCEPT Sunday and any federal holiday (yes, Saturday is considered a business day). The three (3) days gives the borrower a brief window their mind.
Let’s look at a scenario!
You close a Friday and Monday is a federal holiday, when is your rescission period over? The answer is Wednesday at midnight. The funds become available the fourth day after the closing.
In order for your three (3) days to begin you must sign all of the disclosures at the date of closing, receive copies of all disclosures, and receive the right of rescission notice.
Is there a right of rescission on every mortgage transaction?
The answer is No. The right of rescission does not apply to:
Purchase transactions.
Refinance of a second home or investment property.
If a home is being built and complete one transaction (purchase, build and refinance)
If a borrower borrows against their home for business purposes.
Can a borrower waive the rescission period?
Lenders rarely allow the rescission period to be waived unless there is a bona fide personal emergency. Most lenders consider an emergency include urgent home repair due to recent damage or unexpected medical care.
In order to obtain the waiver, the borrower must have an emergency which must be managed before the rescission period has expired by providing a written waiver request which outlines the emergency, sign the waiver request along with any other owners listed on title. If a borrower knows in advance that they need to access their equity they should have begun their refinance or home equity process right away.
What if a borrower wants to cancel their loan?
Cancelling is the borrower’s right and if a borrower decides to cancel, the borrower will not incur fines or interest. Typically the only fee a borrower will incur is the appraisal fee.
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The borrower’s loan package will include a rescission disclosure which can be signed by the borrower and faxed or mailed to the lender that they want to cancel. The deadline to mail your cancellation is Wednesday at 11:59 PM (using our previous closing date). The letter does not need to be postmarked by the deadline, simply in the mail by the deadline.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
