A married couple jointly owns and occupies a home. One spouse signs a refinance secured by the home, and both spouses' ownership interests are subject to the new lien. Who generally receives the right to rescind?
Correct Answer
B) Each consumer whose ownership interest is subject to the security interest
Why this is correct: The right of rescission under Regulation Z is tied to the security interest in a consumer's principal dwelling. The governing rule is that each consumer whose ownership interest in the dwelling is subject to the new security interest has the right to rescind the transaction. This applies regardless of who signed the credit agreement, as ownership creates the interest being pledged. Why the other choices are wrong: Only the spouse who signed the credit agreement is wrong because rescission rights are based on ownership interest, not solely on who is contractually obligated. Only the spouse with higher income is wrong because income is irrelevant to determining rescission rights for owners. Neither spouse because the loan is a refinance is wrong because a refinance of a principal dwelling is generally a rescindable transaction unless a specific exemption applies. Exam tip: For rescission, think 'ownership interest.' If a person's ownership in the home is being used as security, they get rescission rights.
Why This Is the Correct Answer
Why this is correct: The right of rescission under Regulation Z is tied to the security interest in a consumer's principal dwelling. The governing rule is that each consumer whose ownership interest in the dwelling is subject to the new security interest has the right to rescind the transaction. This applies regardless of who signed the credit agreement, as ownership creates the interest being pledged. Why the other choices are wrong: Only the spouse who signed the credit agreement is wrong because rescission rights are based on ownership interest, not solely on who is contractually obligated. Only the spouse with higher income is wrong because income is irrelevant to determining rescission rights for owners. Neither spouse because the loan is a refinance is wrong because a refinance of a principal dwelling is generally a rescindable transaction unless a specific exemption applies. Exam tip: For rescission, think 'ownership interest.' If a person's ownership in the home is being used as security, they get rescission rights.
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