What is the Right of Rescission?

Published by Research Editor on July 25th, 2012 - in Loans

When you refinance–or get a property tax loan–you have the right of rescission. In plain English, you have 3 days to change your mind about the loan, with no penalties and no questions asked.

This right is often called the “cooling off period,” and protects you from both yourself and from predatory lenders with high-pressure tactics. The right of rescission lets you have time to think over the loan, to be sure you really want it.

And if you find a better deal within the 3 day period, you can back out of the first and go for the better.

The right of rescission is a federal law from the Truth in Lending Act for specific situations, but each state can extend it. Texas, for example, generally grants you the right of rescission to sales made at facilities other than the seller’s place of business. See the Texas Attorney General’s site for details on other situations in which this law applies.

How to walk away from a loan

When you signed the loan, your lender should have given you a cancellation form with information on where to send your cancellation. You must mail or fax the form (or a rescission letter that states you are rescinding the transaction) within the 3 day period.

No reasons for cancelling are necessary, and it’s ok if your letter is not received or even postmarked within the 3 day period, as long as you sent it within the 3 day period. It is smart, though, to send the notice in a way that you can prove it was sent within the 3 day period, such as by certified mail.

What counts as 3 days?

The law is specific on this: 3 days is 3 business days, including Saturdays, but not federal holidays. Saturday counts as a business day even if the lender’s office is closed.

The 3 day period starts on the midnight after you sign the loan.

For example: You sign the papers on Friday. At midnight, your right of rescission begins. Day 1 is the entire 24 hour period of Saturday. Sunday doesn’t count as a business day, so day 2 is the entire 24 hour day of Monday and ends at midnight. Tuesday would be the third and final day and ends at midnight. The letter to cancel your loan needs to be put in the mailbox or fax machine before midnight on Tuesday.

Can I rescind my right of rescission?

Your loan cannot be processed until the 3 day period is over. But what if you need the loan today? There are contingencies for emergency situations, but in most situations, you must wait out the 3 days before your loan can go through.

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