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Right to rescind on future advances loan

Answered by: 
Randy Carey

Question: 
I have a question regarding the right of rescission. On a future advance loan, does the right to rescind apply? The original loan was for $75,000 and secured by their the borrower's principal dwelling. They've paid the note down to $35,000. The new note is a future advance on their property and the note will be for $35,000. I think the right to rescind should apply since it is a new advance, even though the total loan amount is less than the original loan amount. I'm new to compliance and we do not do many future advance loans. We are in Missouri, if that matters.
Answer: 

For a closed-end loan, unless it was designed for multiple advances, such as with a construction loan or home improvement up to a certain limit, any new advance that establishes additional debt secured by a principal dwelling would be subject to rescission. Whether you can use an existing deed or mortgage as your security agreement to secure additional notes is not relevant.

First published on 06/23/2024

Filed under: 
Lending
Filed under lending as: 
Reg. Z

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