23 Mar What is the “Notice of Right to Cancel” in the Escrow Process?
A common document that a borrower will come across during the escrow process is the “Notice of Right to Cancel” (also known as the “Rescission Document” or the “Three-Day Notice of Cancellation”).
This document is an important one, so today, we wanted to share with you a bit more about it and provide answers to some commonly asked questions.
- What is the “Notice of Right to Cancel” document?
- When does the right to cancel apply?
- What important dates do I need to know about for the Right to Cancel?
What is the “Notice of Right to Cancel” document?
This document is located in the loan document package and states that the borrower can cancel or rescind their location transaction within three business days after signing their loan documents.
When does the right to cancel apply?
There are often questions from borrowers about what circumstances allow them to cancel and when.
Confusion arises for borrowers as to when the right to cancel applies, and if so, exactly what day the borrower can rescind their approval of the loan transaction.
The right to cancel DOES apply to:
- Applicable to refinances or “home equity lines of credit” extended on a borrower’s “primary residence.”
The right to cancel DOES NOT apply to:
- Borrowers who are purchasing a home
- Borrowers who are refinancing a secondary residence
- Investment or rental properties
- Borrowing on behalf of a business
Understanding the important dates on the “Notice of Right to Cancel” document
A common question about the “Notice of Right to Cancel” document is “How do I know when the three-day period starts and ends?”
- The first is the date of signing.
- The second is the rescission date or final date to cancel.
When the final loan documents are prepared by the lender for the anticipated signing, these two important dates might be noted.
But, there are cases when the lender will not note any dates and will leave the fields blank. This typically occurs if the exact date of the signing is not known.
In this situation, the lender might print instructions on the document for determining the correct dates or may include an instruction sheet along with the Notice of Right to Cancel in the loan package.
If for any reason, the dates that have been included are not correct, the instructions should give information about how to correct them to properly determine the rescission date.
How to determine the rescission date for the Notice of Right to Cancel.
The borrower has the right to cancel until midnight of the third day after signing the documents.
To determine this date, the borrower or qualified escrow officer will count three days starting with the first day following the signing date.
Please note: the following dates are NOT counted or factored into the equation:
- Transaction date is not counted.
- Sundays are not counted
- Recognized Federal holiday are not counted.
Saturdays are counted because banks are open and conduct business.
Here are a few real-life examples to help you understand how to figure out the rescission period:
- Loan documents are signed on Monday, April 9 – rescission period ends on Thursday, April 12 at midnight.
- Loan documents are signed on Friday, April 20 – rescission period ends on Tuesday, April 24 at midnight. (Because Sunday is not counted.)
- Loan documents are signed on Friday, May 25 — rescission period ends on Thursday, May 31 at midnight. (Because Sunday is not counted and Monday is Memorial Day – Federal holiday.)
Of course, if you have any questions about the Notice of Right to Cancel document or Rescission Periods, please don’t hesitate to contact us.
We’re here to help you with the escrow process in any way we can.