Notice of Right to Cancel - Explanation for Borrowers

One of the common documents a borrower may encounter in the loan document package during escrow is the “Notice of Right to Cancel.” This document is also referred to as the “rescission document” or the “3-day Notice of Cancellation.” The document states that the borrower can cancel or rescind their loan transaction within three business days after signing the loan documents. Many borrowers are confused as to when the right to cancel applies and exactly what day the borrower can rescind their approval of the loan transaction.

The right to cancel applies to refinances or “home equity lines of credit” extended on a borrower’s “primary residence.” The right to cancel does not apply to borrowers who are purchasing a home, borrowers who are refinancing their second home, or on investment or rental properties.

There are two important dates on the document. The first is the date of signing. The second is the rescission date, or final date to cancel. In some cases, the dates are already printed on the Notice of Right to Cancel. However, many lenders prefer to leave the dates blank on the document because the exact date of signing may not be known. In this case, the lender typically includes instructions on the document for determining the correct dates or they may be a separate instruciton sheet included with loan package.

The borrower has the right to cancel until midnight on the third day after signing. To determine the correct rescission date after signing, the borrower or his qualified escrow and loan document-signing agent (Notary Public) will count three days beginning with the first day following the signing date (the transaction date is not counted). Sundays and legal federal holidays are not counted, and are therefore skipped. Saturdays are counted because banks conduct lending business on this day. To help with the determination of the correct rescission date, free “rescission calendars” are available and can be found via the Internet.