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  • #6556
    Mary Frances

    We have a strange situation and need clarification if we should rescind or not.
    We have a business loan that will payoff 4 existing business purpose loans and will also payoff a 1st and 2nd mtg on the guarantors’ principal dwelling and various consumer & business credit card debt. The guarantors are going to hypothecate their home to the business for the loan. Is there rescission? We think we should rescind since the guarantors live in the house being hypothecated.


    There seems to be a lot going on in this situation. You need to determine if this is truly a business purpose transaction ( If it is exempt from Reg Z as a business purpose loan, the collateral will not cause it to become applicable to Reg Z. See the commentary below:

    Official Interpretation

    Section 1026.23—Right of Rescission

    1. Transactions not covered. Credit extensions that are not subject to the regulation are not covered by §1026.23 even if a customer’s principal dwelling is the collateral securing the credit. For example, the right of rescission does not apply to a business purpose loan, even though the loan is secured by the customer’s principal dwelling.

    If you have additional information or if you determine this is not a business purpose transaction please let me know.

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