Rescission in a mortgage transaction accomplishes which outcome?

• A. Terminates all obligations and ends the contract
• B. Extends the closing date by 30 days
• C. Restores each party in a contract to the position held prior to the transaction (correct)
• D. Requires new disclosures

Answer: (C)

Rescission unwinds a mortgage transaction and returns both parties to the position they held before the loan was made. For certain secured loans on a primary residence, the borrower can cancel within a set period. If they exercise this right, the lender must undo the transaction: return any money paid by the borrower, the borrower must return any funds advanced, and the lien on the home is released so the security interest ends. This is why rescission is described as restoring each party to their pre-transaction position. It’s not simply about ending all obligations, extending a closing, or creating new disclosures—the effect is to undo the loan as if it never occurred.