What is a rescission period?


Quick Answer

The rescission period is a period during which consumers are allowed to revoke the closing of certain mortgage-related agreements. It refers to three business days after one of the following events: the consummation, the delivery of the paperwork concerning the agreement or the delivery of the rescission notice.

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Full Answer

The right of rescission is a part of the Truth in Lending Act, a federal law implemented in 1968 with the purpose of providing consumers with protection from predatory creditors and lenders. It includes the right to revoke the closing of certain types of mortgage contracts. As a result, homeowners are allowed to change their minds and cancel credit and loan agreements without having to justify their decision, as long as it is made during the three-day rescission period. Upon receiving the rescission notice, lenders and creditors lose their claim to the property in question and are expected to refund the fees to the consumer within a period of 20 days.

The right of rescission does not cover all mortgage contracts. A homeowner is allowed to exercise this right only in the cases of refinancing an existing mortgage with a different lender, as well as in home-equity credits and loans. Rescission does not apply when buying a home or refinancing a mortgage on a second home.

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