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What is Recission in Mortgage Process
What does recission mean in the mortgage process?
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4 Replies
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Rescission in the mortgage process refers to the cancellation of a mortgage contract under specific circumstances, allowing borrowers to cancel or rescind the loan agreement within a certain period after signing the loan documents. This right is primarily applicable to refinancing and home equity loans rather than initial mortgages on a primary residence. Here’s a detailed breakdown of how rescission works in the mortgage context:
Legal Framework
The right to rescind is granted under the Truth in Lending Act (TILA) in the United States, which is designed to protect consumers by ensuring they have all the necessary information about the costs and obligations of their mortgage.
When Rescission Applies
- Refinancing: Homeowners who are refinancing a mortgage on their primary residence with a new lender (not their original lender).
- Home Equity Loans and Lines of Credit: Borrowers taking out a home equity loan or a line of credit on their primary residence.
- Non-Purchase Loans: Generally, any mortgage transaction where the borrower is using their primary residence as collateral, except when purchasing the home or refinancing with the same lender.
How Rescission Works
- Three-Day Right: Borrowers have three business days after signing the loan documents, receiving the Truth in Lending disclosures, and receiving notice of their right to rescind to decide if they want to cancel the mortgage contract. This window includes Saturdays but not Sundays or federal holidays.
- Notice of Cancellation: To rescind, the borrower must notify the lender in writing within the three-day period. The notice doesn’t need to be formal; it simply needs to state that the borrower is exercising their right to rescind.
- Effects of Rescission: Once the borrower rescinds the contract:
- The lender must cancel all claims to the property, essentially voiding the mortgage.
- The lender must return any payments made by the borrower within 20 days after receiving the rescission notice.
- The borrower must return any funds or property received from the lender (e.g., the loan amount).
Why Rescission is Important
Rescission provides a safety net for consumers, allowing them an opportunity to reconsider their financial commitments with a cooling-off period. It’s especially useful in cases where the terms of the loan might not be favorable or clearly understood, or if the borrower feels pressured into accepting the loan.
For borrowers considering using their right of rescission, it’s crucial to understand the timeline and the process for notifying the lender. Proper adherence to these regulations ensures the borrower can effectively manage or avoid unwanted or burdensome debt.
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When does the three day time clock start. If the loan closed today, Monday April 22, 2024, when is the three day over and a refinance loan going to fund?
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Hi Dawn, the rescission period starts when the borrower receives/signs all the documents in Brandon’s first bullet point above.
In your example, if all the requirements were satisfied on April 22nd, the first day of rescission would be April 23rd. Since there are no holidays of weekends involved, the rescission window would close at midnight Thursday, April 25th. Funding likely to take place on the following day – Friday.
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This reply was modified 6 months, 2 weeks ago by Sonny.
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This reply was modified 6 months, 2 weeks ago by
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Thank you for the point blank explanation. Appreciated.