Rescission When Owner Is Not Borrower

Question:

Customer is purchasing primary residence using his sister's house as additional collateral, as well as the purchase property. The sister and her husband are going to be borrowers as well. Do we need to provide a right of rescission on the property of the sister?

Answer:

Yes. Although the purchase of a home is a "Residential Mortgage Transaction" (which is exempt from the RofR requirements), the twist here is that the sister and her husband is pledging her home. Therefore, from her perspective, this is a home equity loan requiring rescission. However, the rescission notice need only be given to the sister and her husband.

Original answer amended 021704.

First published on BankersOnline.com 2/2/04