A right of rescission is the legal right which gives a borrower the right to cancel a line of credit or home equity with a new lender. Additionally, it gives the right to cancel a refinance transaction made with a different lender other than the current lender within three days of closing. When taking advantage of this right, the lender must give up claim to the property and refund fees within 20 days.
The right of rescission only applies to the following:
- Home equity loan
- Home equity line of credit
- Refinancing for primary residences (with a new lender)
- Cash-out refinance
The right of rescission does not apply to the following:
- When purchasing a new home
- When refinancing with the same lender
- Refinancing a vacation or investment property
How to exercise the right of rescission?
There is no procedural approach to exercise a right of rescission. However, the lender should make the borrower aware of the right of rescission. The notice of a right of rescission must include how to exercise it, the form(s) needed to execute a right of rescission and the address where the form(s) should be sent. The borrower is able to exercise their right to rescission after submitting the required form(s) within a three-day timeframe.