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Scenario: A son is living in a home his parents currently own, and he submits an application for credit to purchase the home from them. We’ve always heard for purchase of a dwelling the borrower is already living in, we consider….”is the dwelling that is, or will be acquired currently the roof over the borrower’s head?” And…if so, the transaction would be rescindable. I have pasted a section from Reg Z below.
Can I get some other opinions? Hoping to clarify my interpretation that this transaction is rescindable.
Reg Z, section §1026.15 Consumer’s right to rescind: (a)(1)(i) Except as provided in paragraph (a)(1)(ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased.
Thanks so much!
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The confusion come in because the regulation does not match the language of the law. TILA says: Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Bureau, of his intention to do so. TILA – Right of Rescission
You can see that this differs from the language you included from the regulation because it does not specify it must be an owner of the property. Jack has always advocated the safe approach is to follow the law as it provides protection to more consumers and would save you some trouble if a court decides the regulation doesn’t accurately interpret the law. On the flip side, following the regulation probably won’t get you into trouble with your examiner since most will be looking to the regulation to evaluate your processes.
This a great example of effective use of the Forum. Pcorder submitted a legitimate question after completing a search for the answer. Rcooper provided the perfect answer to a question where the answer is not readily available.
We too, have always taken the safe approach, but was challenged by the CEO as a result of it being identified as an exception. He contacted our primary regulatory who agreed with his approach. So, going forward we will not treat as rescindable. Unfortunately, 5 different examiners can interpret the regulation, and have different interpretations. Geez….
Thank you Rcooper, for your time and effort on this! It didn’t even occur to me to refer to the language in THE LAW. I’m thankful to have excellent resources and support from this group! 🙂
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