There is a consumer construction loan to build a couple’s new primary residence and the bank is taking their current condo as an abundance of caution. Would this invoke the right of rescission since the condo is being taken as an abundance of caution?
Yes, it does. There is no special rule about abundance of caution and there is a special rule that indicates that rescission would apply when taking both old and new principal residences as security:
Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.
Comment 4 to 1026.23(a)(1)
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