Rescission RightsCredit Repair Definition
The legal right of a borrower to cancel certain types of loans within a specific timeframe after closing.
Definition
Rescission rights refer to a consumer protection provision, primarily under the federal Truth in Lending Act (TILA), that gives borrowers the right to cancel certain types of loans secured by their primary residence within three business days after closing, receiving the required disclosures, or receiving notice of the right to rescind, whichever occurs last. This 'right of rescission' applies mainly to home equity loans, home equity lines of credit (HELOCs), and mortgage refinances with a *different* lender than the current one. It does *not* typically apply to loans used to purchase a home (purchase-money mortgages) or refinances with the *same* lender. If the borrower exercises their right to rescind within the timeframe, the loan is canceled, the lender must return any fees paid, and the security interest in the home is voided.
Frequently Asked Questions
Which loans typically have a right of rescission?
The 3-day right of rescission under TILA primarily applies to home equity loans, HELOCs, and refinances of existing mortgages with a *new* lender, provided the loan is secured by the borrower's principal dwelling.
Which loans typically do NOT have a right of rescission?
It generally does not apply to: loans used to purchase or construct a home (purchase-money mortgages), refinances of existing mortgages with the *same* lender (unless new money is advanced), loans on second homes or investment properties, or loans with state agency lenders.
How do I exercise my right to rescind?
You must notify the lender in writing before midnight of the third business day after the latest of: signing the loan documents, receiving the TILA disclosure (including the finance charge and APR), or receiving the notice explaining your right to rescind. Business days include Saturdays but exclude Sundays and federal holidays. It's best to send the notice via certified mail or another method providing proof of timely delivery.
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