Image courtesy of Flicker, Brad Montgomery
The Right of Rescission allows you to cancel a home loan refinance process, even after you have signed the loan documents, for any reason.
When it comes to most financial transactions, once you sign on the dotted line, it is unlikely that you can easily change your mind. There is, however, one exception to this rule involving mortgage transactions referred to as Right of Rescission.
Federal law established the right of recession to enable homeowners to cancel a refinance or home equity loan transaction after they have signed the loan documents, for any reason. This only applies to owner occupied properties, so you must be using this home as your primary residence. The rescission process is simple, but must be followed exactly.
The right of rescission falls under the Truth in Lending Act. It provides the borrower the right to cancel a refinance of an existing loan or home equity line of credit within three days of signing the loan documents. This option is available on a no questions asked basis.
Your loan package should contain at least 2 copies of a document outlining your right of rescission. This document will state who you need to contact to rescind (cancel) your loan, as well as what information needs to be included in your letter.
The request to rescind your loan must be in writing and needs to clearly state that you wish to rescind your loan. If not already pre-filled for you, include your contact information, property address and loan number as well for good measure.
The law states that your letter must be sent within three business days (including Saturdays but not including Sundays or legal holidays) of either closing the loan or when you receive your loan disclosure documents, whichever comes later.
If you sign your loan documents at 5 p.m. on a Thursday evening, then you have until 11:59 p.m. that following Monday (technically before 12:00 a.m. Tuesday morning) to exercise your right of rescission. Be sure that your fax is sent, and/or letter is post marked within that period of time.
Take note, the right of rescission does not apply to purchase mortgages, investment properties, or any type of business loan.
There is only one exception to the three day rule. You can have up to three years to rescind your loan if your lender failed to provide you with the proper Truth in Lending disclosures. Although a rare occurrence, believe it or not, this can and does happen!
The right of rescission only applies to a refinance of your existing home loan or a home equity line of credit (HELOC) of owner occupied properties. It does not apply to purchase loans, investment properties or any type of business loan.
A letter must be faxed or mailed within three business days of closing or the receipt of the Truth in Lending documents in order to cancel the loan, however, you do not need to provide any explanation as to why you find it necessary to cancel the loan.
This powerful tool is available at your disposal to put your mind at ease when committing to these types of financial transactions, and to give you sufficient time to review all the final documentation to ensure everything is in order and to your liking before it is finalized.
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