Cashing Out During the Rescission Window
On Friday, May 9, 2025, your borrower consummates a $310,000 cash-out refinance of her primary residence. The loan pays off her existing first mortgage of $280,000 and wires her $28,000 for a kitchen renovation. At the table, the closing agent hands her a single copy of the Notice of Right to Cancel and says the second copy will be mailed. No federal holidays fall in the period, and the settlement agent's office is open on Saturdays. On Monday, May 12, the borrower leaves you a voicemail: 'I want to cancel - the contractor walked off the job.' On Tuesday, May 13, the settlement agent disburses the loan, pays off the old mortgage, and wires the cash-out. On Wednesday the borrower calls again, furious, and says she was told she had already missed her window.
1. When did the rescission period expire, and was the borrower's Monday voicemail an effective cancellation?
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Expiration. For rescission, a business day is every calendar day except Sundays and federal holidays - Saturdays count. Counting from consummation on Friday, May 9: Saturday May 10 is day one, Sunday is excluded, Monday May 12 is day two, and Tuesday May 13 is day three. The right expires at midnight on Tuesday, May 13, 2025. So on Monday the borrower was still inside the window, and a proper written notice sent Monday or Tuesday would have been timely.
Effectiveness. The voicemail is probably not an effective cancellation. TILA requires notice by mail, telegram, or other written communication; a phone call is not written notice. The borrower's intent was clear and timely, but the method was defective. The correct response on Monday was to tell her to send written notice immediately - email with acknowledgment, fax, or overnight mail - and to flag the file so nothing disbursed.
One more layer. She was given only one copy of the notice, and the second copy may never have arrived. If the notice was not properly delivered, the rescission period can extend for up to three years after consummation or until the property is sold, whichever comes first. Confirm what was actually delivered, whether the notice was on a separate document with the correct expiration date, and whether two copies went to each consumer with a rescission right. If delivery was defective, Wednesday's call is well inside the extended period - but she still needs to put it in writing.
2. Did Tuesday's disbursement create a violation, and what are the lender's obligations if a valid written rescission arrives?
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Disbursing on Tuesday, May 13 - inside a rescission period that ran to midnight that day - is a serious operational and compliance failure. The borrower could still rescind after the money left, and by then the old mortgage had been paid off and the cash-out wired out, making the transaction hard to unwind. Examiners treat disbursement before the rescission period expires as evidence of a broken process, and if the lender then refuses a valid cancellation, it is a clear violation.
If a valid written rescission arrives, within 20 days of receiving it the lender must:
- Return all money or property the borrower gave, including fees paid at closing.
- Take steps to terminate the security interest and release the lien.
- Recover the amounts already disbursed - the payoff to the prior lender and the $28,000 wire - and reflect that in the accounting.
The borrower must tender the principal she received, but where the lender has already paid proceeds to third parties, her tender obligation is deferred until the lender takes those steps. Practically: the old mortgage must be reinstated or re-paid, the borrower returns the $28,000, and the lender absorbs the fees. Exposure includes actual and statutory damages, attorney's fees, and a three-year limitations period for rescission claims, plus class exposure if the single-copy practice is routine.
3. What should you have done differently at and after consummation, and what should you do now?
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At consummation. Confirm the closing agent delivered two copies of the notice to each consumer with a rescission right, on a separate document, with the correct expiration date written in. Confirm the borrower signed the acknowledgment and left with her copies. Never accept 'we will mail the second copy' as completion - verify it happened.
Operationally. The disbursement calendar should be built from the rescission expiration date, not from the funding date: no payoff and no wire until after midnight on the third business day. A same-day funding desk that does not check the rescission clock is a systemic problem, not a one-off.
After the Monday voicemail. Return the call the same day, tell the borrower in plain language that she must send written notice before midnight Tuesday, offer to accept an emailed or faxed notice with acknowledgment, and place a hold on disbursement. Notify the settlement agent and your compliance team immediately.
Now. Preserve the voicemail, the call log, the disbursement records, and the notice copies. Escalate to compliance the same day rather than defending the timeline. Do not tell the borrower she missed her window before you have confirmed the notice was properly delivered - if it was not, she may have years, not days. Cooperate fully and let compliance determine the cure.