Rescission
Definition and meaning of Rescission in real estate.
Rescission is the legal cancellation of a contract, which returns all parties involved to the positions they held before the agreement was made. It essentially treats the contract as if it never existed.
In more detail
In real estate, rescission can occur by mutual consent of the buyer and seller, or it can be ordered by a court due to fraud, misrepresentation, or a mutual mistake. Federal law also grants borrowers a right of rescission for certain mortgage transactions, such as refinancing a primary residence or taking out a home equity loan.
Under the Truth in Lending Act, borrowers typically have a brief cooling-off period to cancel these loans without penalty. When a contract is rescinded, any money or property exchanged must be returned. This remedy is different from a simple breach of contract, where one party seeks damages while keeping the contract active.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Legal effect | Restores parties to pre-contract status |
| Federal right | Brief cooling-off period for refinances |
| Common grounds | Fraud, mutual mistake, or misrepresentation |
A buyer discovered that the seller committed fraud by concealing a major foundation defect, leading a judge to order a rescission of the sale, which returned the purchase money to the buyer.
Frequently asked questions
Can a buyer rescind a home purchase contract after closing?
It is very difficult to rescind a contract after closing, and it typically requires proving severe fraud or material misrepresentation in court.
Does the right of rescission apply to a mortgage for buying a new home?
No, the federal right of rescission does not apply to purchase mortgages, only to refinances and home equity loans on a primary residence.
Related terms
Sources & references
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