In Pennsylvania, a buyer can rescind a home equity loan within:
Audio Lesson
Duration: 2:50
Question & Answer
Review the question and all answer choices
1 business day
A is incorrect because 1 business day is insufficient time for borrowers to fully understand their loan terms and make an informed decision. The minimum rescission period established by federal law is 3 business days.
3 business days
7 calendar days
C is incorrect because the rescission period is measured in business days, not calendar days. While 7 calendar days might seem longer, it doesn't align with the federal standard and could include weekends when lenders may not be available to process rescission requests.
30 days
D is incorrect because 30 days is the rescission period for certain types of reverse mortgages, not standard home equity loans. This option likely confuses the rescission period with other loan-related timeframes.
Why is this correct?
The correct answer is B because federal TILA regulations provide a 3-business-day rescission period for home equity loans secured by a primary residence, regardless of state-specific laws that might offer different protections.
Deep Analysis
AI-powered in-depth explanation of this concept
This question tests understanding of the Truth in Lending Act (TILA) right of rescission, which is crucial in real estate practice for protecting consumers during mortgage transactions. The rescission period allows borrowers to reconsider loan decisions without penalty, particularly important for home equity loans where borrowers may be using their home as collateral. The question requires distinguishing between different time periods and understanding that business days differ from calendar days. Many students confuse rescission periods for different loan types or business days versus calendar days, making this question challenging. This connects to broader knowledge of federal consumer protection laws in real estate, which exist to ensure fair lending practices and protect vulnerable borrowers from predatory lending or impulsive decisions that could cost them their homes.
Knowledge Background
Essential context and foundational knowledge
The right of rescission stems from the Truth in Lending Act (TILA), a federal law enacted to promote informed use of consumer credit. This right specifically applies to loans secured by the borrower's primary residence, such as home equity loans and lines of credit. The 3-business-day period allows borrowers time to review loan documents and reconsider their decision without penalty. The rescission must be in writing and is effective when received by the lender. This protection exists because home loans represent significant financial commitments, and using one's home as collateral creates substantial risk for borrowers.
Think of the 3-business-day rescission period like a 'cooling off' period for a major purchase. Just as many stores allow returns within a few days, TILA gives borrowers 3 business days to change their mind about using their home as collateral for a loan.
When you see 'rescission' in a question, visualize a 3-day cooling off period for home loans. Remember it's business days, not calendar days, and that it applies specifically to loans secured by the primary residence.
For rescission questions, remember the 3-business-day rule for home equity loans. If you see calendar days as an option, it's likely incorrect. The rescission period applies only to primary residence loans, not investment properties.
Real World Application
How this concept applies in actual real estate practice
A Pennsylvania real estate agent shows a buyer a property who later decides to take out a home equity loan using the new home as collateral. The buyer signs loan documents on Thursday afternoon. On Monday morning, the buyer has second thoughts after discussing the terms with a financial advisor. The agent explains that the buyer has until the end of business on Wednesday (3 business days) to rescind the loan without penalty. If the buyer waits until Thursday, the rescission period would have expired, and the loan would proceed as agreed.
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