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We have a customer that has purchased a farm that has tenant house (he is temporarily living in the house) and he wants to build a new home on the same property…will he need to sign Right of Rescission if he secures his construction loan with the farm?
Reg Z Comment 23(a)(1)-4
Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer’s current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.
My opinion is that rescission would apply since that tenant house is his current principal dwelling and it will be securing the loan.
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