What are My Rights to Cancel the Refinance Contract?
Did you know that under federal law, specifically the Truth in Lending Act (TILA), a borrower has a right to cancel a mortgage refinance taken with a lender other than the lender servicing the current mortgage within three days of the closing? You have the right to cancel the mortgage related transaction (provided that the transaction fits the aforementioned criteria) within three business days of the transaction. This right is known as a right of rescission and is available to all Massachusetts residents.
When does Closing Occur Under the TILA?
If you are refinancing a mortgage in Massachusetts, the three days to rescind the refinancing contract will ordinarily start when all of the following has occurred:
- The Promissory Note has been signed by you
- The Closing Disclosure Form or a form which contains a Truth in Lending Disclosure has been received by you
- You have received, in duplicate, a notice which explains your right of rescission
From that day forward, if the aforementioned events apply to your specific situation, you will have three business days (including Saturday but not Sunday or a public holiday) to cancel the mortgage refinance if you so choose. Please see the NOTE below.
NOTE: Keep in mind that § 1026.23 of the TILA is convoluted on the point of the definition of closing and the explanation made here should not be relied upon solely to determine when closing has occurred as defined in the TILA. It may be necessary or wise to contact a real estate or closing attorney to determine the appropriate timeline that should be used to determine precisely when the three-day count begins and ends.
How and Whom do I Notify of my Choice to Rescind?
If you choose to rescind the refinancing of your mortgage in Massachusetts you can do so by using the process outlined by the lender in the notice explaining your right of rescission. If no such procedure is given by a lender, you must submit to the lender your decision to rescind within the three-day time period. It is important to remember that the burden of proof that you cancelled the mortgage refinance is on you, which means that you must be able to prove that you sent the rescission notification to the lender as provided in § 1026.23 of the TILA:
if by mail, within the three-day period
if by telegram, within the three-day period,
if by other means, when delivered to the lender’s place of business
Because the timing of the events which have occurred in exercising a right of rescission is critical to properly exercising the right of rescission under the TILA, it is crucial to keep accurate records of each step in the closing process. Among other events, be sure that you can demonstrate when the Promissory Note was signed, when the Truth in Lending Disclosure was received and when signed by you, and when and if you received notice of your right of rescission.
Again, because of the many moving parts involved and the time sensitive nature of exercising a right of rescission in a mortgage refinance with a lender, it is critical that all documentation of every piece of communication between the two parties is kept. Remember, you will have to prove that your choice to rescind or cancel the mortgage refinance was done within the provisions of the TILA if the rescission of the mortgage refinance is contested by the lender. Keep careful documentation and accurate records to ensure your best outcome and contact an attorney familiar with the requirements of the TILA if you find yourself in this situation.
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