The TILA requires the lender, in most situations, to supply the debtor(s) with a notice of this right to rescind at closing. A notice of the right to rescind is not required in limited situations. For example, the right to rescind does not apply to a refinancing by the same creditor of an extension of credit already secured by the consumer’s principal dwelling, unless the new amount financed exceeds the principal balance and earned but unpaid finance charge on the existing debt.

Here, Mid-Penn Consumer Discount Company issued a loan to the debtors secured by a mortgage on their home. The debtors came back to Mid-Penn and refinanced the mortgage at a later date. In addition to refinancing the balance owing at that time, Mid-Penn made additional advances to the debtors and secured the additional funds with a new mortgage on debtors’ real estate for the greater loan balance.

The Court held that the right of rescission applies only to the additional funds advanced at the time of refinancing. Hence, the debtors’ election to rescind, exercised two years after the transaction, was effective but only as to the additional funds advanced with the refinanced loan. Rosetta Porter v. Mid-Penn Consumer Discount Company, 129 B.R. 397.

Author: Charles R. Harroun, Attorney at Law