The Notice of Right to Cancel: An In-Depth Look

If you’re a borrower refinancing your home, you may encounter a document in escrow called the “Notice of Right to Cancel.” This document is also referred to as the “rescission document” or the “3 day Notice of Cancellation.” Basically this is a formal way to void the loan in case you change your mind for some reason and need to cancel the loan after signing the documents. It states:

The borrower can cancel or rescind their loan transaction within three business days after signing the loan documents.

right to cancel

This is your right to change your mind before everything goes through!

The borrower would be able to fax a request or send a request in writing to cancel their loan and it would be a penalty-free way to change your mind.But when exactly do you have this right? And how are the three days counted exactly until the right to cancel expires? Luckily, your North Orange County Escrow Experts shed some light on this topic!

 

So in what circumstances does the right to cancel apply?

The right to cancel applies to refinances or “home equity lines of credit” extended on a borrower’s “primary residence.” So this means that when you are borrowing money based on your principle home’s value (your “primary residence”) that you have the Right to Cancel and you will receive the Notice of Right to Cancel in your loan packet.

 

It is important to note that the right to cancel does NOT apply to:

  • Borrowers who are purchasing a home,
  • Borrowers who are refinancing their second homes,
  • An investment or rental properties,
  • Borrowing for one’s business,
  • Borrowers refinancing with the same lender except for any cash out portion of this kind of loan,
  • Nor does it apply when you borrow from a state agency.

 

Two Important Dates on the Notice of Right to Cancel

There are standards to understand when exactly the 3 day period during which you have the right to cancel starts and when it ends. We look to the document itself to find clues to these answers! There are two important dates on the document: the date of signing, and the rescission date, or final date to cancel.

 

When the lender prepares the final loan documents for an anticipated signing, he may indicate these dates by printing them in advance for the borrower on the Notice of Right to Cancel. However, many lenders prefer to leave the dates blank on the document because the exact date of signing may not be known.

 

In this case, the lender may print instructions on the document for determining the correct dates. The lender may also insert an instruction sheet into the loan package with the Notice of Right to Cancel.

 

If the dates are already printed on the document in advance, but are incorrect, the instructions will provide information on how to properly correct, or how to properly interpret the dates to determine the rescission date.

 

right to cancel rescission calendar

Here’s a sample rescission calendar for May 2014, available on the Internet.

So I Signed the Transaction on Friday—When Exactly Does the Right to Cancel Expire?”

The borrower has the right to cancel until midnight on the third business day AFTER signing.

 

To determine the correct rescission date after signing, the borrower, or your qualified North Orange County Escrow Expert will count three days beginning with the first day following the signing date—so the transaction date is NOT counted. But it is important to note that the day right of rescission clock doesn’t start until the following conditions are met, usually on the date of signing:

  1. Borrower signs the loan documents
  2. Borrower obtains a copy of all agreed upon terms of the loan
  3. Borrower must also receive a Notice of Right to Cancel

 

It is up to the lender to supply these things on the date of signing. If not, the rescission period could be quite a while! This is rare but it is important to understand your right in these cases.

 

Sundays and legal federal holidays (list of U.S. federal holidays) are also not counted, and are therefore skipped. Saturdays are counted because banks conduct lending business on this day. In the above example, if you signed the loan document on Friday you have until Tuesday at midnight to cancel, void, and effectively nullify that transaction.

 

The previous example assumes that Monday is not a federal holiday. If it were a federal holiday, than your signing date of Friday means you have the right to cancel by Wednesday at midnight.

 

Any other questions on this topic can be directed me or to any of our knowledge Escrow Experts here at North Orange County Escrow!

 

author right to cancel

Debbie Purdy has been an Escrow Expert at NOCEscrow for more than 30 years. She is well-equipped to handle any complex real estate transaction.