When acquiring a mortgage refinance or home equity loan, keep in mind the law protects the right to cancel the deal within three business days, even after the papers have been signed. This process is called the “right to rescission” or “right to rescind” in which borrowers have the ability to abandon loan agreements without a reason needed. This was designed to make sure lenders are providing accurate details of the loan to the borrower, in order to ensure the borrower does not find themselves in a loan that has changed from what they originally agreed upon. This three day rescission option is used in certain cases that would protect the consumer by decreasing risk of using equity in order to secure a loan.
There are some restrictions as to what “right to rescission” applies to, but is not limited to what type of lender you borrow from. Here are some of the categories that are covered: home equity loans, home equity line of credit, mortgage refinance (if new loan was not provided by same lender of original-home purchase loan), and cash-out refinance (regardless new money is covered, but not original home-purchase loan). A specific reason is not required for wanting to back out of the loan, nor permission from the lender is required, simply requesting to halt the process is sufficient. However, certain restrictions apply to this process. Rescission does not apply to loans made to purchase a house, any loans involving properties that aren’t the primary residence and business loans.
In order to rescind a deal, all you need is the letter from your lender that describes your right of rescission. This letter also provides all the proper information about the process of rescission, such as where the paperwork should be sent and what is required. The letter needs to be in writing and sent via mail or fax and needs to include the fact you request to rescind the transaction for a certain property. If choosing to send by mail, it does not have to be received nor postmarked within the three-day period, just mailed within that period. Also, it would be a good idea to send your notice in a manner that requires a signature or some way of proving it was sent and received.
The three-day period of rescission may seem quick but it actually only excludes Sundays and legal holidays. This means, on the day of signing, the clock starts at midnight and will proceed till midnight three days later. For example, if you signed your loan on a Friday at 1:00pm, the three day rescission window would not expire until Wednesday at 12:00am. Furthermore, if your lender did not provide you with the proper disclosure forms at closing, the three day window does not apply in this situation and you have three years from the date of closing to rescind your loan.
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