a Loan: Your Home As Security
need a personal loan and are thinking about using your home as security,
you should know about a credit law that gives you extra time to
reconsider the loan agreement. When you use your home as collateral
for a loan, you generally have the right to cancel the credit transaction
within three business days. This is called your "right of rescission,"
and it is guaranteed by the Federal Truth in Lending Act.
of rescission gives you three extra days to reconsider whether you
want to use your home to guarantee repayment for a personal loan.
The right applies even if your home is a condominium, mobile home,
or house boat, as long as it is your principal residence. The right
applies to certain installment loans -- where you borrow a fixed
amount and repay the debt on an agreed payment schedule -- as well
as to home equity credit lines -- a form of revolving credit in
which your home serves as collateral.
Rescinding a Credit Transaction Means
a credit transaction means you are canceling the deal. In other
words, you decide that you do not want the loan or the service being
rescind the credit transaction within three days for any reason.
For example, you may find better credit terms, such as a loan that
offers a lower interest rate or does not require the use of your
home as collateral.
Rescind a Credit Transaction
you waive your right of rescission, you have until midnight of the
third business day after the transaction to cancel the contract.
The first day after all three of the following events occurs counts
as Day One:
sign the credit contract.
receive a Truth in Lending disclosure form containing certain important
disclosures about the credit contract. These disclosures explain
the key terms of the credit being offered: the annual percentage
rate; the finance charge; the amount financed; the total of payments;
and the payment schedule.
receive two copies of a notice explaining your right to rescind.
be aware that for rescission purposes, business days include Saturdays,
but not Sundays or legal public holidays. For example, if the last
of the above three events occurs on a Friday, you have until midnight
on the following Tuesday to rescind.
this waiting period, your creditor should not take any action on
your transaction. For example, the creditor should not give you
the money from the loan or, if your are dealing with a home improvement
loan, the contractor should not deliver any materials or start work.
decide to exercise your right of rescission, you must notify the
creditor in writing that you are canceling the contract. You may
use the form provided to you by the creditor, a letter, or a telegram.
Whatever form of written notice you use, make sure it is delivered,
mailed, or filed for telegraphic transmission before midnight of
the third business day. Remember: You cannot rescind just by telephoning
or visiting the creditor.
never receive the disclosures or the notice of rescission from the
creditor (see numbers 2 and 3 above), you can cancel at any time
during the first three years after you sign the credit contract,
or before you sell your home -- whichever occurs first.
Happens When You Rescind
20 days after a creditor receives your notice of rescission, all
money or property you paid as part of the credit transaction must
be returned to you. The creditor also must release any security
interest in your home.
have received money or property (such as building materials) from
the creditor, keep it until the creditor proves that your home is
no longer being held as collateral and returns any money you already
have paid. For example, the creditor may show you a release of a
lien previously filed with your city or county clerk's office to
prove your house is no longer collateral. You must then offer to
return the creditor's money or property. If the creditor does not
claim the money or property within 20 days, you may keep it.
Your Right to Rescind
you may have a financial emergency and not be able to wait for the
creditor to slow the loan process by suspending action for three
business days. For example, you may need to borrow money quickly
to have a damaged roof or house foundation repaired.
allows you to waive your right of rescission if you have a "bona
fide personal financial emergency." This enables you to have
the loan process speeded up to meet the emergency situation. To
avail yourself of this right, you must give the creditor your own
written statement (pre-printed forms are not allowed) describing
the emergency and clearly stating that you are waiving your right
to rescind. The statement must be dated and signed by you and anyone
else who shares in the ownership of the home.
your decisions carefully: If you waive your right to rescind, you
must go ahead with the credit transaction.
Situations With No Right of Rescission
of rescission does not apply in all cases where your home is used
as collateral for the loan. You do not have the right of rescission
apply for a loan to purchase or build your principal home;
consolidate or refinance with the same creditor a loan that is already
secured by your home, and no additional funds are borrowed; or
* a state
agency is the creditor for the loan.
in these cases, however, you may have cancellation or "cooling-off"
rights under state or local law.