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10
Jul
2020

Right of Rescission – Refinance

Federal Right of Rescission applies to additional funds advanced with refinance.
 
The Truth in Lending Act (TILA) was adopted by Congress to promote the informed use of consumer credit. Consumers may rescind a credit transaction within three business days of its consummation where the lender acquires a mortgage interest in the debtor’s principal dwelling as security.

The TILA requires the lender, in most situations, to supply the debtor(s) with a notice of this right to rescind at closing. A notice of the right to rescind is not required in limited situations. For example, the right to rescind does not apply to a refinancing by the same creditor of an extension of credit already secured by the consumer’s principal dwelling, unless the new amount financed exceeds the principal balance and earned but unpaid finance charge on the existing debt.

Here, Mid-Penn Consumer Discount Company issued a loan to the debtors secured by a mortgage on their home. The debtors came back to Mid-Penn and refinanced the mortgage at a later date. In addition to refinancing the balance owing at that time, Mid-Penn made additional advances to the debtors and secured the additional funds with a new mortgage on debtors’ real estate for the greater loan balance.

The Court held that the right of rescission applies only to the additional funds advanced at the time of refinancing. Hence, the debtors’ election to rescind, exercised two years after the transaction, was effective but only as to the additional funds advanced with the refinanced loan. Rosetta Porter v. Mid-Penn Consumer Discount Company, 129 B.R. 397.

Author: Charles R. Harroun, Attorney at Law



This entry was posted on Friday, July 10th, 2020 at 4:33 am and is filed under Mortgages, Truth In Lending. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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