You taught me (well, everyone you have taught if they recall) that Section 125 of TILA requires everyone who is borrowing money and securing it by their primary residence to be given right of rescission – even if they do not have an ownership interest.
That has meant that if John Doe was renting his home and decided to buy it, I have always insisted that we give him ROR.
Is this still your stance? Did I remember correctly at all? Has anything changed? Thank you (I’m catching flack and need some reassurance please).
Your memory is good. As I am sure you recall, Regulation Z grants the right to rescind to any consumer if a security interest is or will be retained or acquired in a consumer’s principal dwelling. The Truth in Lending Act grants the right to rescind to any obligor if the transaction is secured by a dwelling he or she occupies as a principal dwelling.
Under Regulation Z the borrower in your example does not have the right to rescind; he does not have an ownership interest. But, under the TILA the borrower does have the right to rescind; the loan is secured by the dwelling they occupy as a principal dwelling.
On a risk-weighted basis, should I press this issue and insist that we give rescission based on the law (which every “BOL guru” and even Alan Dombrow will say I’m wrong – as he did when I asked him about it at Compliance School in 2002)?
OR is it small enough of a risk to acknowledge that I’m technically wrong, but give in and fight about more important issues?
This is a fairly low risk violation for two reasons:
1) This situation does not arise very often; and
2) Even though you bank is violating the law, you are in compliance with the regulation, which provides a great defense if your bank gets sued.
I would keep it on your TO DO list, but eliminate higher risk concerns before you take on this item.