There are several reasons a person may want to cancel a mortgage application even if they have signed it and sent in all the paperwork.
According to the law, the borrower has the right of rescission, which gives him or her the power to cancel their loan deal within three days or 72 hours of the closing excluding Sundays and national holidays.
The borrower should first call the lender to inform that they plan to cancel the mortgage and ask for any paperwork required as well as what fees will be refunded. They then need to write a mortgage cancellation letter and send it as soon as possible.
The cancellation letter should contain the following information:
- The name and address of the borrower
- The mortgage application number
- The date of the application
- The date and time the borrower phoned the lender and informed that the borrower wants to cancel the mortgage
- A return request for the application and any other documents such as W-2 forms
- Request information about any refundable and non-refundable fees and ask if there is a cancellation fee
- Offer to discuss the situation by phone or answer any questions
The right of rescission was created to ensure that lenders give accurate disclosures and that borrowers don’t sign up for a loan that has different terms than what was originally told to them by the lender.
The lender is required by law to provide a confirmation of cancellation either over the phone or in person. They also need to confirm in writing. The lender may require the borrower to fill out certain cancellation forms.
The borrower should keep any communications concerning the cancellation as well as a journal in which the borrower records all the dates and times of any telephone conversations they had with the lender as well as the name of the person to whom they spoke.
If the period of rescission has past, but the borrower is the victim of mortgage fraud, they need to contact their state Attorney General’s office to cancel the mortgage contract. The borrower should not stop making mortgage payments during this time because that can have a negative effect on their credit rating.
Cancelling The Mortgage
Cancelling the mortgage will completely erase the history of underwriting, including the rate, terms and payment schedule, so borrowers need to be certain that this is the step they want to take.
If there is more than one name on the mortgage, both people need to sign the mortgage cancellation letter. When the lender receives the cancellation letter, he must immediately cancel the mortgage loan. The lender may not try to re-solicit the loan or try to change any of the terms to attract the borrower.
Time Limit For Rescission
Since there is a time limit for rescission, the borrower must have proof that they acted in good time. The borrower should keep a copy of this letter and keep it with the return receipt. After about a week, the borrower should call the lender and find out the status of the cancellation request.
It is also recommended for the borrower to visit the Registry of Deeds in their city about one week after they have cancelled the mortgage to make sure the mortgage, if recorded, was released immediately after the rescission notice was received.
Below is a sample mortgage cancellation letter. It should be written in formal business-letter style and sent by certified mail with next day delivery. The borrower should request return receipt.
Sample Mortgage Application Cancellation Letter
Name of Borrower
Address of Borrower
City, State, Zip Code
Name of Loan officer
Name of Lending Institution or Bank
Address of Lender
City, State, Zip Code
RE: Cancellation of my mortgage number NUMBER
Dear Name of Loan Officer:
This letter is in reference to our phone conversation on DATE when I informed you that I wanted to cancel my mortgage and a formal notification in writing. I applied for the loan on DATE and submitted all the required documents for approval and closing.
However, I have discovered a lender who will give me a lower interest rate on the same amount required for my mortgage. I am informing you within the time limit of 72 hours of closing, so I have the right of rescission.
Kindly cancel my mortgage application and return all the documents to me. I will be happy to come to the bank and get the documents whenever you inform me they are ready.
I understand that the credit check and appraisal fees are refundable, but the application processing fee and rate lock-in fee may not be refundable.
I will pay any cancellation fee if you inform me at the time I get the documents. I am requesting a formal Release of Mortgage document.
I can be reached at Phone Number or at Email Address if you have any questions. Kindly let me know on or before DATE when I can pick up my documents.
Signature of Borrower
Printed Name of Borrower