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Not to be confused with the word “recession,” rescission is defined by the law dictionary as “an equitable remedy that wipes out the existing contract and restores the parties to their situation prior to entering into the contract.  In general terms, rescission refers to the cancellation of a contract.  Therefore, if money has been paid by one party to another, then that money is returned as part of the rescission process.”

Should you consider refinancing, it is important to know your rescission rights as well. Whether you are familiar with this term or not, rescission allows you three days to go over the refinancing documents to ensure the terms of the contract are exactly the terms agreed upon.  This is additional homeowner protection against scam artists as well as bait and switch schemes utilized by unscrupulous lenders.

Moreover, when you begin discussions about refinancing with a mortgage lender, it is mandated that you are given full disclosure about rescission rights at the outset.

How does rescission work? Let’s assume you are given the refinance contract and take it home to read.  Perhaps you found something in the contract that was unfamiliar to you or not agreed upon with the lender.  You decide to exercise your rescission rights.

The proper procedure is to send a written cancellation to the lender or mortgage broker as well as the title company.  You can do so within the three-day time limit; from Monday through Friday only.  As an example, say your loan is granted on a Monday.  The rescission then begins on Tuesday, and you have until midnight Thursday to cancel the contract.  Holidays do not apply.

The sub-prime mortgage crisis is a prime example of how things can go horribly wrong when dealing with lenders who prey on innocent first-time homebuyers.  Before entering into any contract, regardless of what that contract is, it is important to know your rights beforehand.

If, after meeting with a lender or mortgage broker, you still do not fully comprehend the terms of the contract, it is better to cancel the contract utilizing the rescission period.  Ensure you keep copies of all documents sent to banks, lenders, mortgage brokers, and title companies.