'Cooling off' law brings double-interest charge


February 27, 1994|By MICHAEL GISRIEL

Q: I recently closed on a refinancing. Interest was paid on the refinanced loan from the date of closing through the end of the month by check. Interest on the old loan from the date of closing through five days later was included in closing costs. The reason that was given was the "right of rescission" -- the right to rescind for three business days, and because we closed on a Wednesday, the rescission period went to Monday. The result: five days of double interest. Is this legal?

G. Hanna, Cockeysville

A: Under federal regulations that affect FDIC and FSLIC mortgage lenders, all borrowers have a right to rescind the loan transaction for three business days after the transaction. The right to rescind does not apply to purchase loans but does apply to all refinance and home equity loans.

The idea is to allow a "cooling off" period so that a borrower is not pressured into a transaction that he does not truly want -- similar to the federal cooling-off period for door-to-door salesmen who sell products such as home improvements or aluminum siding.

The problem with mandating the three-day right to rescind is that double-interest must be paid for the rescission period. The old loan cannot be paid off until the new loan is final, and the new loan cannot be final until after the rescission period. Therefore, both loans are outstanding for that rescission period, and interest must be paid on both.

Q: I own ground whose rent is $90 a year. If I want to sell it, can I raise the price above par value?

L. Malkus, Glen Burnie

A: Your $90 per year ground rent probably has a par value of $1,500. If you sell it to a third party, you can charge anything you want -- though, at the moment, few would pay more than par. However, if the homeowner wants to buy the ground, you must sell it to him at par or less.

If you, as a landowner, create a new ground rent, then you can ZTC set any par value or interest rate you choose depending on what the market will bear. Consult a real estate attorney for more information.

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