We commonly close 1st mortgages with piggy back home equity lines of credit for purchase transactions. I know we must give a RoR on the HELOC for future advances. What I am unsure about is when can you disburse on the HELOC? Can you disburse the HELOC funds immediately for the purchase transaction or must one wait for the 3 day rescission period before disbursing?

The portion associated with the RMT can be disbursed immediately.

You can distribute immediately, since it's all purchase money.

Thanks all! That's what I thought; but, I talked myself out of it. It's Monday for me!

If I could follow-up - We also make piggy back HELOCs used at least in part for downpayments. How do you adjust the language of the rescission notice to reflect that the portion of the line used for the downpayment is not subject to rescission? Or do you consider the entire line rescindable where any part of it is? Thanks

I got the following from another BOLer. It's been a while back and I don't remember which one so I can't give proper credit. Also, there is no warranty for its legitimacy.

ADDENDUM to Your Right to Cancel

We have agreed to establish an open-end credit account for you, and you have agreed to give us a security interest in your home as security for the account. The terms of the agreement allow subsequent advances on your account when the amount borrowed is less than the credit line. You have a legal right under federal law to cancel the right to make subsequent advances on your account, without cost, within three business days after the latest of the following events:

(A) the date of the opening of your account which is ______________; or
(B) the date you received your Truth-in-Lending disclosures; or
(C) the date you received this notice of your right to cancel the right to make subsequent advances on your account.

If you cancel the right to make subsequent advances on your account, your cancellation will only apply to subsequent advances. It will not affect the amount advanced for the purpose of purchasing your home when the account is opened, and it will not affect the security interest we have in your home. Within 20 calendar days after we receive your notice of cancellation, we must take the necessary steps to reflect the fact that your home does not secure subsequent advances on your account, and we must return any money you have given to us or to anyone else in connection with any subsequent advances.

I hereby acknowledge receipt of two (2) copies of this addendum. Should I decide to cancel my right to subsequent advances, I shall do so by midnight of _____________________ by sending a copy of the Notice of Right to Cancel along with a copy of this addendum to the address specified on the Notice of Right to Cancel.


_____________________________________ ________________
Date

_____________________________________ ________________
Date

This may start off as my dumb question of the day so please forgive me. Where is the benefit to the borrower to not rescind on future advances? If they draw the original line to purchase the dwelling, but for some reason elected to rescind future advances is this saying that later on if they take an advance say to purchase a car, and then decide not to purchase the car they can back out of the advance? I may be thinking too hard about this, but appreciate any thoughts!

Yes. If you do not provide them a ROR similar to the above at the origination of the HELOC then you would have to give them the ROR for EACH subsequent advance. If you did not then they would have the right to rescind the advance and all costs associated with that advance up to 3 years from the date of the advance.

So if I make a 36 month HELOC loan to purchase a primary residence I must give a rescission notice at the consummation of the transaction. If I do not give the one time notice at consummation, then, I must give one for each subsequent transaction?

That is correct. But remember the advance that is to be used for the RMT is not subject to the ROR and can be disbursed at consummation.

Thank you Dan

One more question: If the purpose of the HELOC is to purchase a residence (RMT) is it ok to give the regular rescission notice or must it be a modified notice like the one above?

If you use the regular ROR how would you stipulate the initial advance is not subject to rescission. I'm not saying you can't but I would advise talking to your attorney to insure you are protected. Also if you use ARTA Lending they have a ROR notice for this purpose. I don't remember the form number but your support rep can get it for you.

That's a good point. thanks

where do I find the requirement for ROR on the subsequent portion of the HELOC in TIL?

Check the commentary under open-end credit at 1026.15.

15(f) Exempt Transactions

1. Residential mortgage transaction. Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.

Deleting post. I had erroneous information. Sorry all!