TRANSACTIONS UNDER FEDERAL TRUTH-IN-LENDING AND REGULATION Z


18.1 Right of Rescission


Where the attorney is certifying to the creditor or its assigns as to the priority of a security deed given to the creditor in a transaction subject to the right of rescission of the Truth-in-Lending Act and Regulation Z, and the attorney is unable to verify that the right of rescission has been legally terminated, the attorney may take exception to any violations affecting the enforceability of the security deed as a result of Truth-in-Lending and Regulation Z.

Comment: Not all transactions subject to the Federal Truth-in -Lending Act (15 U.S.C. Sections 1601 et seq.) and Regulation Z (15 U.S.C. following Section 1700) are subject to the right of rescission. The right now applies only to those transactions in which (a) an existing indebtedness on the consumer’s dwelling is being paid off by the proceeds of the new loan from a different creditor, (b) a second or junior lien is being placed on the consumer’s existing dwelling, (c) an existing loan is being increased in amount or the terms thereof are being amended (but the loan is not subject to the right of rescission if the “amount financed” of the new loan does not exceed the unpaid principal balance, any unearned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation; but the right of rescission extends only to any additional sums advanced by the creditor) and (d) the consumer who holds title to the dwelling free and clear is placing a lien in favor of the creditor as security for the transaction.

In a transaction subject to the right of rescission, the creditor is required to furnish the consumer the notice of the right of rescission along with “material disclosures” which are the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule. The period for rescission runs until midnight of the third business day following the later of consummation of the transaction or delivery of the notice of the right of rescission and all “material disclosures.” If the required disclosures are not given, the right of rescission terminates three years from the date of consummation or upon the sale or transfer of all of the consumer’s interest in the property, whichever occurs first, provided, that the consumer has not already elected to exercise the right of rescission during this period. “A sale or transfer of the property need not be voluntary to terminate the right of rescission. For example, a foreclosure sale would terminate an unexpired right to rescind.” See Commentary, Reg Z Section 226.23(b).