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Right of Rescission
Category - Home Ownership FAQ's - Refinancing

The Right of Rescission lasts for a period of 3 complete business days (72 hours from midnight the first day to midnight the third day) from the first day following your signing your loan contract.

The Right of Rescission applies only to refinance transactions on a property that is used as the borrower's primary residence. The Right does not apply on a purchase transaction or property that is being used for investment or a second home. The borrower may not waive his Right of Rescission.

Subsequently, the lender will not fund any loan until the Rescission period has expired.

Be sure to check with your title company or settlement agent to determine when your rescission period ends, because no funds will be disbursed prior to the end of the rescission period. This can affect paying off your previous mortgage as well as any other debts consolidated into the new mortgage.

When trying to figure out when your loan will fund, or when your rescission period is over you will count the 3 days beginning the day after signing. Monday-Saturday are all included as a rescission day however Sundays are not. Also legal holidays are not counted as rescission days.

Rescission means the ability to cancel the contract. In relation to mortgage refinancing, the law gives the homeowner 3 days to cancel a contract once it is signed and if the transaction used equity in the home as security.

There is no Right of Rescission on primary residence purchase loans. With Non-owner occupied homes there is no rescission period.

In certain states, such as Texas, rescission may be for a longer or shorter period of time. Your loan officer can help you answer this question for your state.

You must exercise the right of rescission within three business days of signing the loan papers, receiving all the loan disclosures, and getting a copy of the notice that there is a right of rescission.

The Right of Rescission is a federal law granted in the Truth-in-Lending to the mortgagors. It is meant to give the borrower a "cool off" period and to review the mortgage documents. In a refinance, funding takes place after the 3-day rescission period.

This period of time starts from midnight of the day of signing and goes until midnight 72 hours out. This means if you sign on Monday the loan will not fund until Friday.

The rescission period is a federal right. You have 72 hours. However some lenders have decided to increase the rescission time. This is often done after getting the hand slapped for unfair lending practices. There are lenders now that will give you a 7 day rescission period. If a lender is offering you 7 days to rescind, read your HUD 1 carefully for loan charges etc...

Please note that most refinance transactions require that the lender provide you with a 72-hour time frame after the closing, during which you may cancel the transaction. The money cannot be disbursed until after the 3- day "Right of Rescission" expires.

Home Buying FAQ's - Financing
Home Ownership FAQ's - Refinancing
Real Estate Almanac - Glossary of Terms