Right of Rescission

Have you ever made a decision you later regretted, only to wish you could have taken it all back?

Well, you might be in luck.  The “right of rescission” period is a provision under the Truth in Lending Act that essentially gives homeowners who are refinancing their mortgages a chance to mull things over before committing to the new loan terms.

If a homeowner decides to refinance their mortgage, once loan documents are signed, they will have the right to rescind for a period of three business days.

The right to rescind is essentially the “right to cancel” the mortgage transaction and have any fees refunded if they aren’t happy with the loan for any reason.  It’s basically a consumer protection mechanism.

Technically, all fees should be refunded to the consumer if they choose to rescind the mortgage. This includes all lender fees (application, processing, etc.), broker fees, and third party fees, such as title and appraisal fees, whether paid to the lender or directly to a third party.

The only non-refundable fees are those paid by a consumer to a third party that take place outside of the credit transaction, including things like building and zoning permits.

Assuming the borrower wants to rescind the mortgage, they must provide written notice to the lender during the rescission period. The bank/lender must then take the necessary steps to indicate that the transaction is terminated by canceling loan documents, filing the release/termination statements in the public record, and refunding fees to the borrower.

This must take place 20 calendar days after receipt of a notice of rescission.

Rescission Period = Time to Change Your Mind

During the rescission period, the borrower has the opportunity to assess the situation and make absolutely certain they want to go through with the transaction.

At this time, they can think things over and change their mind if need be. And most importantly, if at any time during those three days they decide they want to back out entirely, they can do so without penalty.

Perhaps you felt pressured by your bank or mortgage broker, or feel you were a victim of predatory lending. This would be a great time to rescind the mortgage and go someplace else, or not even go through with the transaction at all.

When the Right of Rescission Period Begins and Ends

The rescission period begins at midnight the day after loan documents are signed, and ends three business days later, including Saturdays, but not Sundays or federal holidays.

At midnight on the third business day the rescission period is over, and the signed loan documents become official.

Example of a right of rescission period:

If loan documents are signed on Monday, the rescission period begins Tuesday, and ends Thursday night at midnight. On Friday the loan could then fund and record.

If loan documents are signed on Thursday, the rescission period begins on Friday, and ends Monday at midnight because Sunday doesn’t count as a business day.

In certain circumstances, you may also be able to waive your right of rescission to speed up the loan process, though there must be extenuating circumstances, specifically a “bona fide personal financial emergency.”

The bank or lender cannot fund the loan until the rescission period is over.

There Isn’t a Rescission Period on All Mortgage Transactions

However, the rescission period isn’t available for all mortgage transactions.

It is limited to refinances on owner-occupied properties only! Purchase transactions do not have a rescission period.

Additionally, vacation/second homes and investment properties do not have a rescission period, even if it is a refinance transaction!

Also, there is no right of rescission if the borrower is refinancing their loan with the same mortgage lender the loan was originally financed with.

*For cash-out refinances financed with the same original lender, the cash-out amount is the only portion that carries a rescission period.

Home equity lines always have a right of rescission period, unless the entire line amount is used to fund a purchase transaction.  For example, it is quite common for a HELOC to be used entirely as a purchase-money second mortgage, meaning no rescission.

Make sure you know your (pardon the pun) rights when it comes to the right of rescission. Loan officers and mortgage brokers may not give you all the facts, or they may lie to ensure the mortgage funds and they receive their commission, so stay informed.

Lastly, and this goes without saying, be sure you’re 100% clear on the rescission rules for your particular mortgage before you sign, not after…don’t be afraid to ask questions early on to avoid any misunderstanding late in the game.



115 Comments

  1. Colin Robertson December 4, 2017 at 4:46 pm -

    Joe,

    Sounds like it might be true if they’re asking you to re-sign it. They may have thought it wasn’t necessary then decided/determined it would be.

  2. Joe Johnson December 4, 2017 at 1:17 pm -

    I closed a reverse mtg loan and there was a charge of 125.00 for counseling on the settlement and we had paid it. They said they would have us resign the settlement statement later but no big deal. When I went to pick up my funds today (3 days later) they say we might have to sign and start recession over again, could this be true after we have already did the 3 day recession and it is 125 they owe us?

  3. Wylie Chandler September 6, 2017 at 5:15 pm -

    Collin if you do a 2nd DOT to somebodies primary residence does the ROR apply? I always thought if it was your primary and you were securing the loan with a DOT the ROR applied.

  4. Lacey Hamilton July 30, 2017 at 10:36 pm -

    If the borrower signed the RTC and then changes their mind, can they send a letter to still move forward with the loan or do we legally have to cancel the loan and start over?

  5. Chad July 28, 2017 at 6:42 am -

    “This must take place 20 calendar days after receipt of a notice of rescission.” — what happens if that doesn’t take place? What can the borrower do?

  6. Yvette July 5, 2017 at 7:41 am -

    If loan documents are signed however the riders to the note and deed are missed. the documents are then drawn and the lender had me resign the riders a few days later, does the recession period start from the date of the original signing or does it start over?

  7. Jaci Ntoza June 29, 2017 at 11:12 pm -

    When the loan officer explained my right to rescission, he did mention we could take the documents home and think about and rescind before the 3 days. At the time I worked a lot and never had time to come in and sign anything since work held priority. That being said my loan officer knew this from the start and mentioned to me “well I know you don’t ever have time because of work but do you really think you are going to cancel after all of this? If you want sign the papers that you don’t want to cancel and I’ll hold them for you so you don’t have to come back in.” I don’t know but I felt like I didn’t have time to think about this major decision but I couldn’t miss work so I signed it. Just wondering is this legal for a loan officer to do?

  8. John Mayfield June 20, 2017 at 6:01 pm -

    I’m curious, if the seller does not want to sign his or her papers until the three days are up, can the lender still disperse the funds the same day if the buyer waits and signs their paperwork on the day of disbursement? Example, Closing will be on Monday the 26th, therefore the lender will disperse the funds on Friday the 30th. The sellers do not want to sign until the 30th. Can the funds be disbursed on the 30th, or will we have to wait another three days after the 30th?

  9. Colin Robertson May 20, 2017 at 7:01 am -

    Kev,

    There are generally two ways to get out – by canceling and possibly having to eat any upfront fees, such as appraisal, or rescinding, which requires signing loan docs and then exercising your RoR. But I’ve mentioned before that it’s somewhat disingenuous to go through the entire process if you just intend to rescind.

  10. kev May 15, 2017 at 9:26 am -

    I signed papers with Quicken Loans, but we havnt closed yet and the appraiser is due here in a week, can I get out of this loan(refinance).

  11. Nathan April 24, 2017 at 2:32 am -

    We closed on a house we were reluctant to buy. After initial inspections, the list of repairs was to broad. At the behest of our realtor we gave the list to the seller. After a lot of haggling between our realtor and the seller (whom was also a realtor) it was decided they would do all the repairs. After this we decided to walk away, because they hadn’t included us in the process or provided us the covenants. Once the seller did we definitely didn’t want the house. We e-signed the cancellation of the contract and the seller refused to sign saying he would give the docs to his lawyer. We ended up closing on the house, but the seller did not complete all irsa items, or have proof of completion of all repairs. We did not sign the irsa, but did sign all other docs. The seller finally furnished a invoice, and the irsa was signed the day before the rate lock expired. I checked the website for the mortgage company and found out that i am a “non-borrower”. What does that mean? And, how long do I have to wait to put the house on the market?

  12. Colin Robertson April 7, 2017 at 6:47 pm -

    Jay,

    Canceling vs. exercising your rescission might be two different things. If it was the former, did you sign anything with the broker regarding fees and refunds?

  13. Jay April 7, 2017 at 10:20 am -

    Colin,

    I cancelled my refinance process because the rate went too high. I did not pay anything upfront and now the mortgage broker sent me the bill for credit report and appraisal, do I need to pay for it?

  14. Shirley Jacob March 17, 2017 at 11:21 am -

    Does the bank losing the mortgage to another lender receive interest monies during the recession period and how? Is it, perhaps included in the payoff amount?

  15. Colin Robertson March 13, 2017 at 7:18 pm -

    Brad,

    Best to review your paperwork and/or speak to your lender/escrow company directly to be sure.

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