If the property used to secure your HELOC is your primary residence, the federal Truth in Lending Act gives you 3 days from the day the line was opened to cancel (or “rescind”). Should you choose to rescind, the HELOC lender must return all fees including third party charges such as the appraisal. The line will be closed immediately, your property will no longer be considered as collateral, and you will have lost no money.
The HELOC Right of Rescission Protects the Consumer
The right of recession is designed to protect the consumer from predatory lending practices and unwise decisions. If you are unable to pay back your HELOC, you may lose your home and be held personally responsible for any unpaid balance. The right of rescission makes it possible for you to change your mind about the HELOC without losing any money.
Within the 3-day period, you can choose to rescind your HELOC for any reason. Maybe you felt pressured by the lender. Maybe you didn’t quite understand the terms of the line. Or, perhaps you simply decide that taking out a HELOC isn’t a smart financial decision at this time. It doesn’t matter what you reason is - you don’t even have to explain why you’ve changed your mind.
How do I Enact My HELOC Right of Rescission?
If you decide to rescind your HELOC, act quickly. The Truth in Lending Act gives the borrower until midnight of the third business day to notify the lender of the rescission.
Your lender should have given you a document notifying you of your right to rescind as well as a form that can be used to cancel the line. The paperwork should also note the deadline for rescission and the lender’s address. Simply fill out the form and send it to the provided address as soon as possible.
If you send the form by mail, notice is considered given when you drop it in the mailbox – not when it reaches the lender’s address. It is important to note, however, that Saturdays may be considered “business days” in this situation.
Once the lender receives your notice, it has 20 days to return any fees or other money that you have paid in relation to the HELOC.
Waiving HELOC Rescission Rights
During the 3-day rescission period, you will not be able to draw money from your home equity line. If you need the line to be open immediately for a “bona fide personal financial emergency,” you may be able to waive your rescission rights.
Lenders do not want to break federal law by violating your rights, so you will need to provide information detailing the nature of the emergency. In order to get a waiver, you must send the lender a dated, written statement that describes your emergency, notes which rights you want to rescind, and includes your signature.
Legitimate emergencies include situations such as severe home damage due to a storm or money needed for a serious operation. You should call your lender to discuss the best way to waive this right.
HELOC Rescission Rights Extension
In some situations, you may be given longer to rescind the HELOC. If the lender does not initially provide you with all of the disclosures required by the Truth in Lending Act, you are given 3 days from your receipt of that information.
If the lender never provides you with the required disclosures, your right of rescission extends for three years. At this point, rescission can be tricky. If you find yourself wanting to cancel your HELOC in this situation, you should consult an attorney.
Know Your Rights
Pay attention to the rescission information your lender provides, along with all of the other disclosures mandated by the Truth in Lending Act. The 3-day period gives you a second chance to make sure you agree with all of the terms and rates you’ll receive.
To learn more about the rescission period, you may want to read the full text of the law from the FDIC.
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