Three Rescission Questions: Purchasing Rented Unit, HELOC, and Personal Trusts

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Question:

If a client is purchasing a home, and it happens to be a residence they have been renting, are they required to have a rescission? Another situation: If a home equity line of credit is closing the same day as the primary financing for the purchase, is a rescission required for the line? One more: If the property is deeded to a personal trust, is a rescission required on a refinance?

Answer:

Wow, that's a lot of questions for one post. Let's see if I can tackle these one at a time:

No rescission is necessary if a loan is made to a purchase a house that I live in but rent from someone else, because I don't have any previous ownership [see Section 226.23(a)].
This is a little trickier. The first draw of a HELOC to purchase the home is not subject to the Right of Rescission, BUT all future draws are subject to rescission. Alternatively, you can give the Rescission notice at closing to cover all future advances.

Here is the Commentary to Section 226.15(f): "Although residential mortgage transactions would seldom be made on bona fide openend credit plans (under which repeated transactions must be reasonably contemplated), an advance on an openend 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 down payment would be exempt from the rescission right."
Section 226.23(a) makes it clear that the borrower must own the property and reside it as a principal dwelling for the Right of Rescission to apply. Since a Personal Trust owns this property, no rescission is triggered.

First published on BankersOnline.com 1/20/03