ROR on Permanent Financing Loan?

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Question:

Our bank did a construction loan for a customer knowing that permanent financing would be done when home was completed. RESPA documents were given to customer when construction loan was done(preliminary disclosures, TIL, Good Faith etc). Now we are closing the permanent financing loan. Is there Right of Rescission on the permanent financing loan?

Answer:

First, preliminary documents for both phases of financing should have been given before the construction loan began. You received one application that you broke into two loans. Two sets of disclosures were triggered at that time. If you give the P-TIL and GFE after the construction loan was done, what if the customer doesn't like the terms and fees? He is already committed to your institution, so how could he decline permanent financing at this point?

Right of Rescission (RofR) does not apply to a loan to convert a construction loan to permanent financing. Look at the exemptions in 226.23 and you'll see the RofR does not apply to a "Residential Mortgage Transaction". Now review this definition in 226.2(a)(24). Be sure to also read the Commentary to this definition.

First published on BankersOnline.com 8/30/10