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My bank has a loan where our borrowers are refinancing a primary residence that is titled in the name of a limited liability company (LLC). Should the bank provide a right to cancel for the borrowers?

My bank has a loan where our borrowers are refinancing a primary residence that is titled in the name of a limited liability company (LLC.) The borrowers own the LLC. Should the bank provide a right to cancel for the borrowers since they own the entity that is granting the collateral?

No. The individuals do not “own” the LLC. They may have created it, but an LLC is a legal “person.” In addition, if the LLC owns the dwelling, then only the LLC has ownership interest in the property. Because the LLC is not a “natural person,” there is no right to rescind. Essentially, the borrowers are not refinancing the property- the LLC is.

You can refer to the Commentary to §1026.2(a)(11): “Rescission rules. For purposes of rescission under §§1026.15 and 1026.23, a consumer includes any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss.”

That said, this is something you should discuss with your bank’s legal counsel, as there may be other laws that affect how an LLC is treated in your state. (October 2016)

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