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Rescission

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  • #4409
    Mary Frances
    Participant

    We have been told that if a borrower is renting the house they are purchasing and the rent they have paid is going towards the purchase then we have to rescind. Can someone point me to the Reg for this. I have gone through Reg Z but can not find anything on this. Thank you

    #4430
    rcooper
    Keymaster

    If there was a contract beyond the rental agreement indicating the payments were going toward the purchase such as a land contract or a rent to own contract I think RofR would apply. It wouldn’t be considered a residential mortgage transaction and therefore wouldn’t be exempt from RofR. See below:

    From the Official Staff Interpretations for 12 CFR 1026.2(a)(24):
    5. Acquisition. i. A residential mortgage transaction finances the acquisition of a consumer’s principal dwelling. The term does not include a transaction involving a consumer’s principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title.

    ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner’s interest. In these instances, disclosures are not required under §1026.18(q) (assumability policies). However, the rescission rules of §§1026.15 and 1026.23 do apply to these new transactions.

    iii. In other cases, the disclosure and rescission rules do not apply. For example, where a buyer enters into a written agreement with the creditor holding the seller’s mortgage, allowing the buyer to assume the mortgage, if the buyer had previously purchased the property and agreed with the seller to make the mortgage payments, §1026.20(b) does not apply (assumptions involving residential mortgages).

    #4431
    Mary Frances
    Participant

    So if the purchase contact states that the rents already paid will go towards the purchase of the property RoR applies. But if the purchase contract does not state anything about the rent money going towards the purchase then RoR would not apply.
    Correct?

    And where did you find the Staff Interpretations? I have searched using 1026.2 and 226.2 and it does not come up for me.

    #4437
    rcooper
    Keymaster

    If there is any type of agreement which indicates that rent went towards the purchase of the property then I would apply RofR.

    Here’s a link to the Official Staff Commentary at ecfr.gov:
    https://www.ecfr.gov/cgi-bin/text-idx?SID=f68e5376a89c216d53f0503aa7c3aabd&node=12:8.0.2.8.18&rgn=div5#12:8.0.2.8.18.7.1.11.63

    #4442
    Mary Frances
    Participant

    Last question on this topic… hopefully 🙂
    We have a borrower who has a land contract and the parents (who are not on the land contract) are going to buy the property for their children who will be living in the home. The children will not be on the loan. The children will be signing the Deed along with the seller over to the parents. I say there is not rescission because the parents are not living in the house. Is this correct?

    #4452
    rcooper
    Keymaster

    I agree as long as the parent’s primary residence isn’t used as collateral.

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