A rescission period protects a borrower on a refinance of her primary residence. It is not there to give the lender a chance to take back the transaction. The lender has no right of rescission. Once you have signed loan documents, you have entered into a binding contract, and the lender is legally bound to honor those signed documents. The right of rescission is a separate form giving you three days in which you can back out of the transaction without penalty.
Reasoning for the Right of Rescission
The Right of cescission is a part of the Truth in Lending Act, designed to protect a borrower from entering into a mortgage contract he does not fully understand. Sometimes the closing appointment is rushed, and you may not feel you are given enough time to read all the important information in the loan documents. The rescission period gives you time to rethink it and examine the mortgage documents more closely. It only applies on a refinance of a primary residence. When you initially purchase a home, there is no right of rescission; purchase loans typically fund the day after the signing of the mortgage documents. Rescission also does not apply on any loan for an investment property or vacation home.
A Binding Contract
The rescission period lasts three days. If the lender tries to tell you that there is a problem with funding your loan after you signed the documents, know your rights. There could be a legitimate issue, such as a missed signature in the document package. If this is the case, you do need to work with the lender to get everything signed. However, the lender is not allowed to change any terms of your loan or to delay funding.
Exercising your Right to Rescind
Although you have also entered into the binding contract, the right of rescission is a separate document giving you a three-day window to cancel. Be sure to get a copy of the closing documents from the escrow agent or attorney who facilitates the signing. Look them over at home when you have more time. If anything is not as you expected in the documents, that would be a reason why you might want to rescind. If you do exercise your right of rescission, any closing fees you paid must be returned to you. The lender cannot legally charge you any closing costs when you rescind. If you paid any fees upfront for the loan application process, such as for a credit report and an appraisal, you will not get these fees returned.
Signed by all Owners
All people who have some ownership of the house sign a separate right of rescission form. If one person is on the mortgage, but four people have shared ownership of the house, all four people would sign a separate rescission form. Any one of them could rescind the transaction on his own, even without agreement from the others. In states with community property marriage laws, a homeowner’s spouse would have a right of rescission even if the non-borrowing spouse has no ownership in the property.
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