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Getting
a Loan: Your Home as Security – Fast Facts
Facts for Consumers
Federal Trade Commission – February 1992
- The right of rescission
gives you three extra days to reconsider whether you want to use your
home to guarantee repayment for a personal loan.
- Rescinding a credit
transaction means you are canceling the deal.
- If you decide to
exercise your right of rescission, you must notify the creditor in
writing that you are canceling the contract.
- Within 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 law allows
you to waive your right of rescission if you have a "bona fide
personal financial emergency." However, if you waive your right
to rescind, you must go ahead with the credit transaction.
Bureau of Consumer
Protection Office of Consumer & Business Education
(202) 326-3650
If you 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.
The right 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
houseboat, 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.
What Rescinding
a Credit Transaction Means
Rescinding 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 financed.
You can 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.
How to
Rescind a Credit Transaction
Unless 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:
1. You sign the credit contract.
2. You 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.
3. You receive two copies of a notice explaining your right to rescind.
You should 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.
During 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.
If you 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.
If you 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.
What Happens When You Rescind
Within 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.
If you 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.
Waiving
Your Right to Rescind
Sometimes 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.
The law 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.
Consider your decisions carefully: If you waive your right to rescind,
you must go ahead with the credit transaction.
Typical
Situations With No Right of Rescission
The right 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 when:
- you apply for a
loan to purchase or build your principal home;
- you 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.
Even in these cases,
however, you may have cancellation or "cooling-off" rights under
state or local law.
For
More Information
If you want to know more about your right of rescission or to file a complaint,
write to: Correspondence Branch, Federal Trade Commission, Washington,
D.C. 20580.
The Federal Trade Commission publishes a number of brochures containing
information on mortgages. To receive a copies write to: Public Reference,
Federal Trade Commission, Washington, D.C. 20580.
7/81; 2/84; 3/85; 3/86
Reproduced
with permission from The Federal Trade Commission.
Getting
a Loan: Your Home as Security – Fast Facts
Facts for Consumers
Federal Trade Commission –
February 1992
- The right of rescission
gives you three extra days to reconsider whether you want to use your
home to guarantee repayment for a personal loan.
- Rescinding a credit
transaction means you are canceling the deal.
- If you decide to
exercise your right of rescission, you must notify the creditor in
writing that you are canceling the contract.
- Within 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 law allows
you to waive your right of rescission if you have a "bona fide
personal financial emergency." However, if you waive your right
to rescind, you must go ahead with the credit transaction.
Bureau of Consumer
Protection Office of Consumer & Business Education
(202) 326-3650
If you 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.
The right 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
houseboat, 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.
What Rescinding
a Credit Transaction Means
Rescinding 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 financed.
You can 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.
How to
Rescind a Credit Transaction
Unless 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:
1. You sign the credit contract.
2. You 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.
3. You receive two copies of a notice explaining your right to rescind.
You should 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.
During 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.
If you 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.
If you 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.
What Happens When You Rescind
Within 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.
If you 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.
Waiving
Your Right to Rescind
Sometimes 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.
The law 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.
Consider your decisions carefully: If you waive your right to rescind,
you must go ahead with the credit transaction.
Typical
Situations With No Right of Rescission
The right 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 when:
- you apply for a
loan to purchase or build your principal home;
- you 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.
Even in these cases,
however, you may have cancellation or "cooling-off" rights under
state or local law.
For
More Information
If you want to know more about your right of rescission or to file a complaint,
write to: Correspondence Branch, Federal Trade Commission, Washington,
D.C. 20580.
The Federal Trade Commission publishes a number of brochures containing
information on mortgages. To receive a copies write to: Public Reference,
Federal Trade Commission, Washington, D.C. 20580.
7/81; 2/84; 3/85; 3/86
Reproduced
with permission from The Federal Trade Commission.
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