Right of Rescission(Banking) Law and Legal Definition
Right of rescission is the right of a borrower to cancel certain credit contracts without penalty. The right should be exercised within three business days from the date of a loan application. A right of rescission is a right provided by federal law. The right is guaranteed by the Truth in Lending Act (TILA). However, no fee is imposed on the borrower for availing the right. A borrower cancels a home equity loan or line of credit with a new lender. S/he can also cancel a refinance transaction entered into with another lender other than the current mortgagee within three days of closing. A borrower seeking the right must give up all claims to the property.
The purpose of the right of rescission is to protect consumers from unscrupulous lenders and to give borrowers time to change their minds. Not all mortgage transactions provide the right of recession. Only home-equity loans, home-equity lines of credit and refinances of existing mortgages provide such a right, with limitations.