Right of Rescission

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    On a HELOC loan to consolidate personal credit cards, the loan is in the borrower’s individual names using their primary residence, but the house is in the name of their business which is an LLC. Would the borrowers need to sign a Right of Rescission?



    Under Regulation Z it seems as though the transaction you describe would not be rescindable as the consumer does not have an ownership interest (see below). However, under TILA ownership interest does not come into play (see below). I think most people in the industry comply with the regulation, but there is a slight difference in the language between the two and in certain cases, such as this one, the law would require rescission when the regulation does not. If you have doubts or concern give the right of rescission.

    1025.15(a) Consumer’s right to rescind. (1)(i) Except as provided in paragraph (a)(1)(ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased.

    15 USC 1635 (a) Disclosure of obligor’s right to rescind
    Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Bureau, of his intention to do so.

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