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The legal remedy of canceling, terminating, or annulling a contract and restoring the parties to their original positions; a return to the status quo. Contracts may be rescinded due to mistake, fraud, or misrepresentation; there is no need to show any money damage. Where a seller seeks to rescind a contract with a defaulting buyer, the seller must return all payments made by the buyer, minus a fair rental for the time the buyer has been in possession. This is not true, however, under a contract for deed. Sellers often insert a forfeiture clause authorizing them to keep all payments if the buyer defaults. Courts, however, are reluctant to enforce such a forfeiture clause—especially where it is in the nature of a penalty—and often order rescission instead.

Sometimes, purchasers are given a “cooling-off” period during which they can rescind the contract for any reason whatsoever. For instance, the purchaser of subdivided land, which is or should have been registered with HUD, is given a rescission period of seven calendar days from the time of receipt of the property report. In addition, in VA and FHA financing, the buyer is given a right to cancel should the purchase price exceed the official valuation by an FHA or a VA-approved appraiser. There is also a right of rescission under the federal Truth-in-Lending Act and most state time-sharing laws.
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.