Rescission: One for All

Jonathan Foxx

President & Managing Director

Lenders Compliance Group

Recently, we have had an increase in questions about the right of rescission; specifically, about whether the exercise of the right of rescission ("ROR”) by one consumer is effective to all consumers. 

Let's get clarity into this aspect of the ROR requirements. 

In any credit transaction where a security interest is or will be retained or acquired in a consumer’s principal dwelling, section 1026.23(a) [Regulation Z, Truth in Lending Act] provides that each consumer whose ownership interest is or will be subject to the security interest has the right to rescind the transaction. 

The right of rescission also applies to the addition of a security interest in a consumer’s principal dwelling that is added to an existing loan, although rescission only applies to the security interest itself, not the loan.

Note that the right of rescission applies to any consumer with an ownership interest in the property. Therefore, if a consumer signs the note but has no ownership in the property securing the loan, that consumer has no right of rescission. Conversely, if a consumer offers the principal dwelling as security for a loan but is not obligated on the note, that consumer still has the right of rescission.

To exercise the right to rescind, the consumer must notify the creditor of the rescission by mail, telegram, or other means of written communication. Notice is considered given when mailed, or when filed for telegraphic transmission, or, if sent by other means, when delivered to the creditor’s designated place of business.

The consumer can exercise the right to rescind until midnight of the third business day following the occurrence the last of the following events:

• The date of consummation of the transaction;
• Delivery of the rescission notice required by section 1026.23(b); and
• Delivery of all material disclosures.

For this purpose, the term “material disclosures” means the required disclosures of:

• The annual percentage rate;
• The finance charge;
• The amount financed;
• The total payments;
• The payment schedule;
• The HOEPA disclosures and limitations referred to in sections 1026.32(c) and (d); and
• The “higher-priced mortgage loan” disclosures and limitations in section 1026.35(g).

If the required notice and material disclosures are not delivered, the right to rescind does not expire until three years after the date of the transaction, or upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.

When more than one consumer has the right to rescind, the exercise of the right by one consumer is effective to all consumers. 

Therefore, the exercise of the right to rescind by one applies to all.