| ***facts*** | for Consumers |
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**Federal Trade Commission -February 1992**

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Getting a Loan: Your Home as Security ***fast facts***

| - The right of rescission gives you three extra                days to reconsider whether you want to use your                home to guarantee repayment for a personal loan.     
- Rescinding a credit transaction means you are                canceling the deal.     
- If you decide to exercise your right of                rescission, you must notify the creditor  in                writing  that you are canceling the                contract.     
- Within 20 days after a creditor receives your                notice of rescission, all money or property you                paid as part of the credit transaction must be                returned to you.     
- The law allows you to waive your right of                rescission if you have a "bona fide personal                financial emergency." However, if you waive                your right to rescind, you must go ahead with the                credit transaction. |
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| Bureau of Consumer Protection Office        of Consumer & Business Education        (202) 326-3650 |
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If you need a personal loan and arethinking about using your home as security, you should know abouta credit law that gives you extra time to reconsider the loanagreement. When you use your home as collateral for a loan, yougenerally have the right to cancel the credit transaction withinthree business days. This is called your "right ofrescission," and it is guaranteed by the Federal Truth inLending Act. The right of rescission gives you three extra days to reconsiderwhether you want to use your home to guarantee repayment for apersonal loan. The right applies even if your home is acondominium, mobile home, or house boat, as long as it is yourprincipal residence. The right applies to **certaininstallment loans** -- where you borrow a fixed amount andrepay the debt on an agreed payment schedule -- as well as tohome equity credit lines -- a form of revolving credit in whichyour home serves as collateral. 

## What Rescinding a Credit Transaction Means

Rescinding a credit transaction means you are canceling thedeal. In other words, you decide that you do not want the loan orthe service being financed. You can rescind the credit transaction within three days for anyreason. For example, you may find better credit terms, such as aloan that offers a lower interest rate or does not require theuse of your home as collateral. 

## How to Rescind a Credit Transaction

Unless you waive your right of rescission, you have untilmidnight of the third business day after the transaction tocancel the contract. The first day after all three of thefollowing events occurs counts as Day One: 1. You sign the credit contract. 2. You receive a Truth in Lending disclosure form containingcertain important disclosures about the credit contract. Thesedisclosures explain the key terms of the credit being offered:the annual percentage rate; the finance charge; the amountfinanced; the total of payments; and the payment schedule. 3. You receive two copies of a notice explaining your right torescind. You should be aware that for rescission purposes, business days **includeSaturdays**, but not Sundays or legal public holidays. Forexample, if the last of the above three events occurs on aFriday, you have until midnight on the following Tuesday torescind. During this waiting period, your creditor should not take anyaction on your transaction. For example, the creditor should notgive you the money from the loan or, if your are dealing with ahome improvement loan, the contractor should not deliver anymaterials or start work. If you decide to exercise your right of rescission, you mustnotify the creditor in writing that you are canceling thecontract. You may use the form provided to you by the creditor, aletter, or a telegram. Whatever form of written notice you use,make sure it is delivered, mailed, or filed for telegraphictransmission before midnight of the third business day. Remember:You cannot rescind just by telephoning or visiting the creditor. If you never receive the disclosures or the notice of rescissionfrom the creditor (see numbers 2 and 3 above), you can cancel atany time during the first three years after you sign the creditcontract, or before you sell your home -- whichever occurs first.What Happens When You Rescind Within 20 days after a creditor receives your notice ofrescission, all money or property you paid as part of the credittransaction must be returned to you. The creditor also mustrelease any security interest in your home. If you have received money or property (such as buildingmaterials) from the creditor, keep it until the creditor provesthat your home is no longer being held as collateral and returnsany money you already have paid. For example, the creditor mayshow you a release of a lien previously filed with your city orcounty clerk's office to prove your house is no longercollateral. You must then offer to return the creditor's money orproperty. If the creditor does not claim the money or propertywithin 20 days, you may keep it. 

## Waiving Your Right to Rescind

Sometimes you may have a financial emergency and not be ableto wait for the creditor to slow the loan process by suspendingaction for three business days. For example, you may need toborrow money quickly to have a damaged roof or house foundationrepaired. The law allows you to waive your right of rescission if you havea "bona fide personal financial emergency." Thisenables you to have the loan process speeded up to meet theemergency situation. To avail yourself of this right, you mustgive the creditor your own written statement (pre-printed formsare not allowed) describing the emergency and clearly statingthat you are waiving your right to rescind. The statement must bedated and signed by you and anyone else who shares in theownership of the home. Consider your decisions carefully: If you waive your right torescind, you must go ahead with the credit transaction. 

## Typical Situations With No Right of Rescission

The right of rescission does not apply in all cases where yourhome is used as collateral for the loan. You do not have theright of rescission when: * you apply for a loan to purchase or build your principal home; * you consolidate or refinance with the same creditor a loan thatis already secured by your home, and no additional funds areborrowed; or * a state agency is the creditor for the loan. Even in these cases, however, you may have cancellation or"cooling-off" rights under state or local law. For More Information If you want to know more about your right of rescission, writeto: Correspondence Branch, Federal Trade Commission, Washington,D.C. 20580. The Federal Trade Commission publishes a number of brochurescontaining information on mortgages. To receive a copy of *MortgageMoney Guide, Home Equity Credit Lines, Second Mortgage Financing,Refinancing Your Home, and Home Financing Primer*, write to:Public Reference, Federal Trade Commission, Washington, D.C.20580. 7/81; 2/84; 3/85; 3/86