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Home >> Lending >> Home Equity
Retaliation Fears
I have been involved in a fairly serious relationship for the last two years and we were planning to get married. I had applied for a home equity loan to be able to expand my house so it could more easily accommodate two people. To make a long story a little shorter, I've discovered my fiancee has a problem with prescription drugs. The wedding is off, at least for now, and I really don't want to take on the financial burden of another loan on my house when there aren't going to be two of us to make payments on it. The loan closed today and I got a document that says I have the right to rescind! for the next three days. Frankly, that's what I'd like to do, but I'm worried that I'll never get approved for another loan at this bank if I back out of this one. Your thoughts?
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 The right of rescission was designed for circumstances just like this one. It is a right under the federal Truth in Lending Act that comes into play on loans to consumers that are secured by the equity in a consumer's principal dwelling. Congress believed that in a situation where a person's home was going to be put on the line as collateral for a loan it would be wise to provide a cooling-off period during which the consumer could change his mind. If the customer decides to back out of the transaction at that point in time, he exercises the right to rescind (which is a right to cancel), the promissory note is canceled, the mortgage is canceled, and any fees paid to the lender by the consumer are refunded.
In terms of your concern about possible retaliation, Congress thought about that, too, and they built protections into another federal law -- the Equal Credit Opportunity Act (ECOA). Under ECOA, a lender cannot discriminate against an applicant/borrower in any aspect of credit on the basis that they exercised, in good faith, a right they have under the Consumer Credit Protection Act (which includes the Truth in Lending Act.) Translated into plain English, that means that if you rescind this loan, the lender can't get mad and refuse to make you future loans, or give you a bad rate on future loans, just because of your cancellation of this transaction. (Obviously, the lender could deny the loan or give you a less favorable rate in the future if you weren't creditworthy or were not able to come up with sufficient collateral, but that's a different story.)
Published on BankingQuestions.com 7/28/06
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