In the seminar last week, Jack said that a residential mortgage transaction (to buy or build a principal dwelling) was not subject to the three day right of rescission. I am in Texas, and my “people” are saying that’s not true. If a borrower owns the land and that is the only land he owns, it is considered his homestead and to borrow against it to construct a home would be borrowing against his homestead, therefore requiring the three day right of rescission. Who is correct?
Right of Rescission applies to a transaction subject to Reg Z in which a security interest is or will be retained in a consumer’s principal dwelling.
Dwelling means a residential structure that contains 1-4 units, whether or not the structure is attached to real property (mobile homes). The term also includes an individual condo unit, cooperative unit, mobile home, and trailer, if it is used as a residence. A consumer can only have one principal dwelling at a time. A vacation or second home is NOT a principal dwelling.
Right of Rescission doesn’t apply to purchase loans, business loans, transaction where a state agency is a creditor, or refinancing by the original creditor of an extension of credit that is already secured by the consumer’s principal dwelling, so long as NO NEW FUNDS are extended. Any new funds would be rescindable.
If the loan secured by the consumer’s principal dwelling is refinanced with a different lender; then rescission does apply. If the loan (secured by the consumer’s principal dwelling) is a is for home improvement or other consumer purpose then rescission applies. – Assuming none of the above exemptions apply.