Wrong loan purpose leads to no rescission notice

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Question:

What should we do if a home improvement loan was initially applied for as a construction loan and no rescission form was given to the owners of the property? The borrower already received the money. Should we do a rescission form for the customer with a date in the future or try to match the note date? Our lenders periodically give us wrong loan request information and we have clean up work after the loan closes.

Answer:

This is a serious issue. What you call it doesn't matter, but not giving the correct disclosures such as a Right of Rescission is very serious.

I don't believe you can correct a rescission error. You have already advanced the loan funds. To give the rescission notice now is too late. Some advise that you should it later rather than never, but I don't agree. You might wish to seek legal counsel on that issue.

A bigger issue is your statement "Our lenders periodically give us wrong loan request information..." A solution to this must be found.

Here's a statement that might help you and your lenders:
You can only construct a home once. From then on, it is always a home improvement loan.

First published on BankersOnline.com 3/24/03