HELOCS, ROR and Residential Mortgage Transactions

Tagged: ,

Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
  • #6624

    Occasionally we have a HELOC that is used to purchase the property that it is also secured by, in the case of this scenario where it is going to be for the purchase of the consumer’s principal dwelling I have read that the first draw isn’t subject to ROR (to purchase their principal residence) but the subsequent ones are. I need help understanding this, here are my scenarios: If the loan amount is $22,000 and the purchase price is $22,000 they use the entire line for the purchase and then pay it down and re advance later is that “subsequent draw” subject to ROR, or is it more in the circumstance where the purchase price is $22,000 they draw that much to purchase the property but the line is for $30,000 – where there is additional funds available in addition to the amount used to purchase the principal residence (extra $5,000 subject to ROR?)


    Reg Z states:
    15(f) Exempt Transactions

    1. Residential mortgage transaction. Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.

    You could advance the funds for purchase immediately as they wouldn’t be subject to RoR, but all other advances would subject to RofR, so one option is to get a right of rescission for all future advances at closing and wait until the rescission period has expired before advancing any additional funds.

Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.