Posted by TitleGalCA on 10/13/05 10:33pm
Msg #70418

Heloc at purchase requires 3 day recission period?

I had a closing today (I have my title officer hat on, not my SA hat) and escrow authorized recording but couldn't authorize recording the second, a heloc. We closed the sale, and the first deed of trust but lender insisted the heloc was subject to the 3 day recission rule, and I can't record it until next Tuesday.

The reasoning escrow gave me was that since the heloc wasn't being funded until borrower drew funds at their discretion (eg. no funds being disbursed at close) it was subject to RTC.

This is the first I've come across this. Most of the sales I insure contain a first and a heloc. The lender on the first and heloc was the same - and I'm curious about the reasoning. Any thoughts? I'm the first to admit I'm no expert on lending practices but this has me scratching my head.

Reply by Kimberly_IN on 10/13/05 10:49pm
Msg #70422

Was the money from the HELOC carried over onto the purchase HUD?

Reply by PAW_Fl on 10/13/05 10:51pm
Msg #70423

I've run into this a couple of times over past few years with new home purchases. It seems that if the HELOC has an initial draw that pays down the first or is in any way a contributing part of the purchase monies, then the 3-day right of rescission does not apply. However, if the HELOC is simply a line of credit based on the "left over" equity (after the purchase is executed), with no draw to pay against the purchase, and the property is the primary residence, then the 3-day right of rescission must be enforced. In this case, the HELOC is simply a line of credit on "existing" equity, not for the purchase of the property, and as such falls under Title 12 Section 226.

Reply by TitleGalCA on 10/13/05 11:03pm
Msg #70425

I was hoping you'd respond, PAW. That makes sense...and I do recall that on a 500K sale, the first was 250K. It fits.

Reply by clarise_oh on 10/13/05 11:05pm
Msg #70426

There is one lender I have closed for many times that always includes the RTC on heloc's. They are included even when the funds are used for the purchase. According the Federal Trade Commission website, the RTC does not apply if the funds are used to purchase the property.

Reply by PAW_Fl on 10/14/05 10:59am
Msg #70487

Typically, the software packages that title companies use (Calyx, DocMagic, etc.) always print RTC's when the loan type is a HELOC because 90% of the time, a HELOC is an 'after purchase' product and therefore required to have the right of rescission (on primary residential property).