As per the Truth in Lending Act, the right to rescission helps a borrower to cancel home loans of certain types within three days of closing. This right is offered on a "no-questions-asked basis". The lender will have to refund all the fees within 20 days of exercising of the rights and also give up its claim over the property.
How to exercise right of rescission:
You'll have to inform the lender in writing if you want to exercise the right of rescission. A phone call will not help you in this case. You'll have to drop the letter in a mailbox within the deadline of 3 days. However, it is not necessary that the letter has to be postmarked.
Calculating the 3-day rescission period:
After the closing of a loan, you'll get 3 business days time to rescind your loan. Weekends or holidays will not be a part of the time period. So, how can we define a business day? Well, every day except Sundays and federal holidays is a business day. You will find that though the lender's office is closed on Saturday, it will be counted as a business day. The time period expires on the midnight of the third full business day after your loan documents are signed.
Type of homes that qualify for right of rescission:
Types of homes don't really matter in this case. Your property can be a condominium, a floating home, single-family house or a manufactured home permanently attached to the land. In all these cases, you would still have the rights to rescind a loan.
Type of loans that do not qualify for right of rescission:
Many a times, people have the wrong conception that the rescission rights are applicable in case of all home loans. But it's not so. This right is applicable when you refinance your loan with another lender and when you're taking a home equity loan or line of credit. There are 2 situations where this right is not applicable:
- It is not applicable in case of purchase mortgage.
- It is not applicable if you refinance an investment property with the same lender.
Things are different in case of cash out refinance:
Rescission rights get complicated when you want a cash-out refinance. If you want a cash out refinance from your current lender, you'll only be able rescind the cash-out portion. If you're going for a cash-out refinance with a different lender, you'll be able to rescind the entire amount.
Waiving off right of rescission:
If you wish you can request your lender to waive off the rights to rescind the loan. This will help you receive the loan immediately. However, most lenders agree to it only if you've any emergency. Some of the reasons which can qualify as an emergency include paying off immediate medical costs or immediate requirement of a home equity loan to repair the roof of your house blown off in a storm.