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This question was originally posted in our Compliance Master Group forum by mbarnes.
We have been told that if a borrower is renting the house they are purchasing and the rent they have paid is going towards the purchase then we have to rescind. Can someone point me to the Reg for this. I have gone through Reg Z but can not find anything on this. Thank you
If there was a contract beyond the rental agreement indicating the payments were going toward the purchase such as a land contract or a rent to own contract I think RofR would apply. It wouldn’t be considered a residential mortgage transaction and therefore wouldn’t be exempt from RofR. See below:
From the Official Staff Interpretations for 12 CFR 1026.2(a)(24):
5. Acquisition. i. A residential mortgage transaction finances the acquisition of a consumer’s principal dwelling. The term does not include a transaction involving a consumer’s principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title.ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner’s interest. In these instances, disclosures are not required under §1026.18(q) (assumability policies). However, the rescission rules of §§1026.15 and 1026.23 do apply to these new transactions.
iii. In other cases, the disclosure and rescission rules do not apply. For example, where a buyer enters into a written agreement with the creditor holding the seller’s mortgage, allowing the buyer to assume the mortgage, if the buyer had previously purchased the property and agreed with the seller to make the mortgage payments, §1026.20(b) does not apply (assumptions involving residential mortgages).
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