Questions and Answers

In a mortgage refinance transaction where right of rescission is required, is it acceptable to use the date that the borrower executes the commitment as the start date for the rescission period?  Or, is it necessary to start the rescission period on the date the borrower signs the note?

The answer depends on when "consummation" occurs.  According to Regulation Z:

The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the [notice of the right of rescission], or delivery [essential ”Fed box” disclosures], whichever occurs last. [12 CFR 226.23(a)(3)]

The Regulation defines "consummation" as follows:

Consummation means the time that a consumer becomes contractually obligated on a credit transaction.

Your consumer probably is not contractually obligated until he or she signs the promissory note.  Even if the consumer is contractually obligated at the time of commitment, the rescission period does not begin to run until the occurrence of the latest of the three events listed above.  So if you give your rescission notice and your disclosures at the time the note is signed, that is when the rescission period would begin to run.

(Posted: 03/14/2008)

Author Recommendations

Train your staff on the Reg Z right of rescission rules with Compliance University™ On-Line Learning.