Taking out a mortgage may very well be one of the biggest financial decisions you make in your entire life. After all, the size and duration of borrowing and repayment as part of a mortgage loan will influence the course of the borrower's decision-making and financial planning for several decades. Although most homeowner's are overjoyed to secure mortgage financing and buy their home, it's also possible that you find yourself wishing you could exit your mortgage immediately. In some situations, you may have a three-day right to cancel a mortgage obligation.
TL;DR (Too Long; Didn't Read)
A three-day rescission period is granted to borrowers who have requested funds in specific scenarios, such as a home equity line of credit. These borrowers must communicate with their lender directly and state that they are exercising their right of rescission.
Understanding the Right of Rescission
First established by the federal Truth in Lending Act, or TILA, the right of rescission is a specific protection offered to mortgage applicants. According to federal guidelines, the right of rescission provides mortgage borrowers with the option to exit a contract for a home equity line of credit or mortgage refinancing. When the right of rescission is claimed by a borrower, the lender must honor their decision without asking any questions or seeking any form of justification. Once the right has been exercised, the lender is legally required to give up any claims to the property in question and return any fees they have collected within a period of 20 days from the initiation of the right.
Three-Day Rescission Period Rules
Although the right of rescission is guaranteed by the TILA, not all lenders will find it in their best interest to advertise this opportunity. Although federal law dictates that lenders must provide borrowers with information about the right of rescission when applicable, it is not uncommon for this documentation to slip through the cracks. With that in mind, the borrower will often have to take it upon themselves to ensure they have the information they need to protect their own interests.
The right of rescission allots 72 hours for the borrower to cancel. The clock officially begins at midnight following the official signing of the loan documents. It is important to note here that the 72-hour timeframe is measured in business days rather than calendar days.
So, for example, if the time window begins on a Friday at 12:00 a.m., it will carry through the week and end Wednesday morning at 12:00 a.m. The three-day right of rescission calendar will always exclude weekends.
Claiming the Right of Rescission
A three-day right of rescission on home purchase transactions will only apply to specific types of loans. For example, an individual cannot claim the right of rescission on the first mortgage for a property they have just bought. This scenario is expressly prohibited by TILA. However, second mortgages and equity loans are eligible for rescission as needed by the borrower.
In order to claim the right of rescission, the borrower must speak with their lender directly and express their intent to back out of the borrowing agreement. Technically, the lender should already have made clear in writing how the right of rescission can be claimed. If not, the borrower should immediately seek clarification on these issues. If the lender in question is not being cooperative, the borrower may need to consult with a lawyer to determine their best possible options moving forward.
Ryan Cockerham is a nationally recognized author specializing in all things innovation, business and creativity. His work has served the business, nonprofit and political community.