The three-day right of rescission (ROR) gives borrowers on refinance transactions the right to cancel within three business days of consummation. It does not apply to purchase money mortgages. For MLOs, triggering an extended rescission period or failing to deliver proper disclosures can delay funding by days or expose the lender to a three-year rescission window.
When Rescission Applies
- ✦Applies to any refinance of a principal dwelling, including rate-and-term refinances, cash-out refinances, and HELOCs.
- ✦Does not apply to purchase transactions on primary residences, second homes, or investment properties.
- ✦Does not apply to refinances of investment properties.
- ✦Federally related mortgages on primary residences qualify; business-purpose loans do not.
How the Three Days Are Counted
Three business days, not calendar days. Saturday counts, but Sunday and federal holidays do not. Day one is the day after consummation, receipt of the ROR notice, or receipt of the Closing Disclosure, whichever is latest. The lender cannot disburse funds until the rescission period expires. A Friday close means funding on Wednesday at the earliest, assuming Saturday counts as a business day for this calculation.
Extended Rescission Period
If the proper disclosures were not delivered, the rescission period extends to three years from consummation. Courts have found that incomplete or incorrect disclosures trigger the extended period. Lenders who fund early face rescission exposure. MLOs should never represent to the borrower that funding will happen the day of closing on a refinance transaction.
Aria can walk through rescission scenarios, including how to count the three-day period correctly and what disclosure errors extend it to three years. Ask at vicariointel.com.
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