Under Regulation Z, for a home improvement loan secured by homestead property, if the spouse is not an owner of the property, is a disclosure statement required to be given to the non-owner spouse? Does the non-owner spouse have the right to rescind the transaction?

State law here in Texas has certain requirements....not asking about that.....just asking with respect to Regulation Z.

Thank you in advance. FYI - Texas IS a community property state.....if that matters.

If the only "ownership" is dower rights then Reg Z'a ROR does not apply. See the Commentary to 226.2(a)(11)(2).

That's exactly what I was looking for......thanx!!

Dan, I'm curious to your answer. I know the reg refers to ownership interest and the right to rescind (226.23). But the Statue (section 125) states the obligor shall have the right to rescind. We have all known for sometime that there is a slight difference between ownership interest (mentioned in the reg) and obligor (mentioned in the statute). In this case, the non owner spouse is an obligor to the debt as well. The statue does not say or state that the obligor and the person with ownership interest in the primary residence has to be the same. Honestly, the state law doesn't really matter. Even Kirchman's recommends giving the ROR to the ownership interest parties and debtors to the note.

From Section 103 (h):

The adjective "consumer", used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.

The person to whom credit is extened is the consumer/obligor.

From 226.2(11):

Consumer means a cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.

The consumer/obligor must have an ownership interest in the residence and it must be their primary residence to have the ROR.

I see no conflict between the ACT and the Regulation.

What is the definition of an "obligor?" I always thought that to mean borrower or cosigner or guarantor. The husband. in my scenario will not be any of those. He is not an owner (grantor), and will not be a borrower, a cosigner or a guarantor. He's simply married to the borrower and lives in the house.

.......sorry Dan, your post wasn't there yet, when I posted the above...........

The conflict is there if you read it. Section 125. It use the term obligor. Further down in section 125, it further states that all obligors shall have the ROR. The question is what does "obligor" mean in the statute.



This issue has been around for years and attorneys and consulting firms have been suggesting it is wise to give the ROR to the person who has ownership interest in the primary dwelling and other parties to the debt - like a spouse that is on the note.

Believe me the non owner spouse is also the obligor. If they are party to the note, how can you say they are not obligor. And yes the spouse is also a consumer.

The Act (Statute) does not say the obligor is the same of the person with ownership interest. YOUR COMMENT IS INCORRECT! READ SECTION 125.

If it meant it, the statute would have said that directly!

The regulation or the ACT does not define obligor.

From the Merriam Webster dictionary:

Obligor: one who is bound by a legal obligation

From the act and from the Regulation:

Consumer: party to whom credit is offered or extended

By these definitions one would have to assume that under the Act and the Regulation a consumer and an obligor are one in the same.


From 226.1:

(a) Authority. This regulation, known as Regulation Z, is issued by the Board of Governors of the Federal Reserve System to implement the Federal Truth in Lending Act, . . . .

And again for 226.2(11), except this time from the Official Staff Commentary:

Rescission rules. For purposes of rescission under §§226.15 and 226.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. . . . .

If the consumer/obligor has no ownership interest at risk of loss in the transaction then they are not a consumer for the purposes of Reg. Z's ROR.

Swiggles I assumed the non owner spouse is on the note. If this the case, please say so or otherwise.

Dan that's what I've been saying - the act does not define "
obligor". If the non owner spouse is on the note, then that person would be an obligor as well as the other spouse that is on the note (who has ownership interest). They are both obligors.

Are you suggesting that the non owner spouse that signs on the note has no risk? REally????

Pose this question to Jack H. at Pegasus.

Scenario: Husband and wife refinances their primary dwelling - assumes new money. Both are on the note and equally obligated to pay it back. However, only the husband owns the property.

Remember: they are both on the note.

Question: Who gets the ROR under the Reg?
Question: Who gets the ROR under the Statute?
Question: What would Jack suggest from a consulting perspective?

There's no reason to shout, and I have read all the sections of the TILA instead of just 125. One has to carry forward the definitions to apply in each section of the Act or the Regulation.


The regulation gives you the steps to carry out (implement) the Act, and one of the steps for the ROR to apply is the "consumer's" ownership interest must be put at risk. If they have no ownership interest then it can not be put at risk therefore they are not subject to the ROR.

Dan, sorry i was not shouting. I just mis-keyed. I was simply pointing out that there are slight differences in terminology between the two (act & reg). The reg says the consumer must have ownership interest in the primary residence to be subject to ROR.

The Act on the otherhand is not that specific and simply says the consumer obligor is subject to the ROR. What is does not say is the obligor must be the person who has ownership interest.

This minor difference has been the source of debate for about 15 years by attorneys, consultants, etc.

I read the regulation exactly as you do - we agree on what is says. However, the statute is not that "black & white." It does not specifically state that only the person(s) with ownership interest are subject to the ROR.

Oftentimes, courts are asked to definitively interpret the differences in terms. When not explicit within the definition's section in either the act or the reg, courts can often make strange decisions. With that being said, and with an abundance of caution, I usually recommend the ROR to all obligors on the note.

Weeeeeelllll, since in my scenario, the husband is NOT an obligor, or a borrower or an owner, or a consumer, or a grantor, or a co-signer, or guarantor, he shall not be given the right to rescind the transaction.

Kind of a moot argument since this is in Texas.


Texas Constitution

Right of Rescission: Section 50(a)(6)(Q)(viii)

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The owner of the homestead and any spouse of the owner may, within three days after the extension of credit is made, rescind the extension of credit without penalty or charge.

(1) This provision gives the owner's spouse, who may not be in record title or have community property ownership, the right to rescind the transaction.

(2) The owner and owner's spouse may rescind the extension of credit within three calendar days. If the third calendar day falls on a Sunday or federal legal public holiday then the right of rescission is extended to the next calendar day that is not a Sunday or federal legal public holiday.

(3) A lender must comply with the provisions of the Truth-in-Lending Act permitting the borrower three business days to rescind a mortgage loan in applicable transactions. Lender compliance with the right of rescission procedures in the Truth-in-Lending Act and Regulation Z, satisfies the requirements of this section if the notices required by Truth-in-Lending and Regulation Z are given to each owner and to each owner's spouse.

Your excerpt is from the "home equity" section of the constitution. My example was a home improvement loan. For that type of lien, the constitution states that an "owner" may rescind the transaction......no mention of the spouse in that section.(5)(C). But the owner AND the owner's spouse must consent to the lien. (5)(A). Go figure............