March 20th, 2018 6:59 AM by Jackie A. Graves, President
law requires that consumers refinancing first mortgages or obtaining second
mortgages have three days to cancel these loans after they sign their final
loan documents. Here’s what you need to know about this “three day right
of rescission” rule.
Background on Right to Cancel Rule
right to cancel a refinance or home equity loan (often called a second
mortgage) is granted by a provision of the Truth In Lending Act (TILA), a body
of laws first enacted in 1968 that protect consumers by standardizing how
closing costs are disclosed and closing processes are managed.
the disclosures on refinances and home equity loans says that you have three
days to cancel a loan. The Consumer Financial Protection Bureau (CFPB) enforces
this consumer right with lenders.
disclosure rules, the closing documents you’ll sign for a
refinance or home equity loan will include two copies of a notice explaining
your right to cancel the transaction.
you know you’re not going to cancel at the last minute, you can indicate on
these documents (or other accompanying documents) that you wish to waive your
right to cancel.
if you don’t waive this right, you have until midnight of the third business
day after signing your mortgage closing documents to cancel your loan. The
first business day after the closing is day one, and Sundays and holidays don’t
example, if you signed closing papers on a Thursday before Labor Day Weekend
(which includes a Monday holiday), you have until Tuesday midnight to cancel
because day one of your rescission period is Friday, day two is Saturday, and
day three is Tuesday.
note that if you didn’t get two copies of the right to cancel in your closing
package, you have the right to cancel your loan for up to three years.
cancellation must be in writing. Phone requests or even face-to-face requests
are not acceptable.
can use the cancellation forms in your closing package to cancel, or you can
send your own letter to the lender.
CFPB advises that whatever form of written notice you use, make sure it’s
delivered or mailed before midnight of the third business day, and keep a copy
and any evidence that it was delivered or mailed on time.
you do cancel, your lender must refund any transactional costs within 20
days of your cancellation, and you must return any loan funds or fees the
lender has paid to you.
you cancel the refinance and it therefore doesn’t pay off your existing loan,
you must keep current on your existing loan.
three day right to cancel is only for refinances or home equity loans, and
doesn’t apply for home purchase loans.
said, new settlement procedure laws effective October 3, 2015 provide
significant protections to consumers throughout the entire purchase loan
more about the new rules.
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