Rescind Waiver for Funds Availability

Question: We have a loan that closed with the appraisal pending. The borrower signed an affidavit that indicated the loan was subject to the appraisal coming with a value of X and if it did not the loan amount would have to be reduced. We needed to get the 3 day recission moving to be able to fund by a certain date. We received the appraisal and the value did not come in high enough. Now we have to reduce the loan amount. Can we go ahead and date the documents and notarize the documents for the original date so that we can disburse sooner? Or must the disbursement delayed for a new rescission period?

Answer: There is a reason why the law is called Truth in Lending. Rule number one is: always tell the truth. Don't alter the information to fit the result. That being said, there is a practical and very real problem here. It appears from your statement of facts that the borrower needs the money promptly and that the reason the settlement date was set before the appraisal was in was to accommodate the borrower's need for the funds. On this assumption, that the borrower needed the funds by a certain date, the lowest-risk procedure would be to have the borrower write and sign a waiver of the right to rescind. The borrower's waiver should explain the timing issues and the need for the funds by a certain date.

The higher-risk approach would be to presume that because the borrower did not exercise the right to rescind on the higher loan amount, the right to rescind on a lower loan amount would also be considered as having run. This, while seemingly logical, is not discussed in the regulation. The waiver is therefore the safer approach.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 9, 8/05