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Right of Rescission (Home Loans)

A federal right to cancel certain loans secured by your home during a short window after signing - and for much longer if the lender failed to give the required disclosures.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

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What it means

The right of rescission lets a borrower cancel certain consumer credit transactions secured by their principal residence - most commonly a refinance with a new lender, a home-equity loan or a home-equity line of credit - for a short period after the loan closes, for any reason or none. Canceling unwinds the transaction: the borrower owes nothing on the loan, and the lender must release its lien and return what the borrower paid, including fees.

It does not apply to every home loan. A loan used to buy the home in the first place is excluded, as is a refinance with the same lender that adds no new money. Where it does apply, the lender must give each borrower two copies of a notice explaining the right and a copy of the required cost disclosures; the window does not start running until those have been delivered.

That last rule is where the right has teeth. If the notice or the disclosures were never given, or were materially wrong, the window is extended by years, and a borrower who discovers the defect later can still rescind. Because rescission cancels the entire loan rather than a single term, it is one of the strongest remedies a homeowner has against a lender, and lenders litigate the details accordingly.

Where this comes from

The right is created by the Truth in Lending Act at 15 U.S.C. § 1635 and implemented by Regulation Z, 12 C.F.R. § 1026.23 (and § 1026.15 for open-end credit). Both the short window and the extended one are set by that statute and regulation. In Jesinoski v. Countrywide Home Loans, 574 U.S. 259 (2015), the Supreme Court held that a borrower rescinds by giving written notice within the period, without first having to file a lawsuit.

When people hire a lawyer for this

If you have just closed a refinance or home-equity loan and want out, the time to act is now, in writing, and a lawyer can make sure the notice is effective. If the loan is older and you suspect the disclosures were missing or wrong, that is precisely the situation the extended window exists for, and the question of whether it still applies is one to bring to a lawyer rather than to the lender.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

Automatic Renewal and Negative Option SubscriptionsThe federal and state rules on subscriptions that keep charging until you cancel - what a seller must disclose and obtain before enrolling you, the cancellation mechanism it must offer, and where the law currently stands.
Billing Error Dispute (Credit Card Chargeback)The federal procedure for disputing a charge on a credit card statement - a written process with deadlines on both sides that the card issuer must follow, not a courtesy it may offer.
Class ActionOne lawsuit brought by named plaintiffs on behalf of a larger group with the same injury.
Cooling-Off Rule (Canceling a Door-to-Door Sale)The federal right to cancel certain sales made at your home or away from the seller's regular place of business, the notice the seller must give you, and the many sales it does not reach.
Credit Freeze and Fraud AlertTwo free federal tools for stopping identity thieves from opening accounts in your name - one that locks your credit file, one that warns lenders to check who they are dealing with.
Credit Report DisputeThe federal process for forcing a credit bureau and the company that reported an item to investigate information you say is wrong.
Data Breach Notification RightsWhat a business must tell you when your personal information is exposed, which laws require it, what the notice must say, and what a person whose data was breached can actually claim.
Debt Validation Notice and Disputing a DebtThe written notice a debt collector must send when it first contacts you, what it must contain, and the dispute right it opens - during which the collector must stop until it verifies the debt.
Fair Debt Collection (Collector Conduct Rules)Federal limits on what a third-party debt collector may say and do - including a written demand that stops contact, and a 30-day right to make them verify the debt.
Gift Card and Prepaid Card RulesThe federal limits on gift card expiration and fees, the state laws that go further, and the separate protections for reloadable prepaid cards used like bank accounts.
Identity Theft Recovery RightsThe federal rights a victim of identity theft can use to remove fraudulent accounts from a credit report, obtain the records of what the thief did, stop the debts being collected, and limit liability for the charges.
Implied Warranty and the Magnuson-Moss ActThe promises the law reads into a sale whether or not anyone wrote them down, and the federal act that limits how a seller can take them away.
Mandatory Arbitration ClauseA term in a consumer contract that sends any dispute to a private arbitrator instead of a court, usually alone rather than as part of a class - and federal law makes most of them enforceable.
Robocalls and the TCPAThe federal law that restricts automated and prerecorded calls and texts to your phone, gives you a Do Not Call right, and lets you sue for a fixed amount per illegal call.
Time-Barred DebtA debt so old that the statute of limitations bars a lawsuit to collect it - what a collector may and may not do about it, how a payment can revive it, and why the credit-reporting clock is a different clock.
Unauthorized Debit Card and Electronic Transfers (Regulation E)The federal rules that limit a consumer's loss from an unauthorized debit card, ATM, ACH or payment-app transfer, require the bank to investigate an error, and decide who bears a loss the consumer was tricked into sending themselves.
Unfair and Deceptive Practices (UDAP)The consumer-protection laws, one federal and one in every state, that make it illegal for a business to mislead you or treat you unfairly - and the state versions are the ones a consumer can actually sue under.
Vehicle RepossessionA lender's right to take back a financed car after default without going to court - subject to rules about how it is taken, how it is sold, and what you can still be made to pay afterwards.
Wage GarnishmentA legal order requiring an employer to withhold part of someone's pay and send it to a creditor.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programs provide free help with many of these problems: civil legal aid programs by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.