Apparently the attorneys in North Carolina are proposing legislation that would prohibit anyone except attorneys and lenders from closing loans in the state. I guess it is really no surprise that the National Notary Association is opposing the move. They claim that Georgia, an attorney-only state, has one of the highest rates of mortgage fraud in the country. And, attorney-only closings will only create a monopoly that will cost consumers more.

 

"North Carolina lawyers are proposing the type of monopoly that has driven up costs time and time again," Reiniger said. "Eliminating competition is a terrible move that will make lawyers more money at homeowners' expense."

But, I referred to a case in previous post, A Simple Transaction, that pointed out that even in home equity lines of credit, an attorney's representation can prevent problems for the homeowner.

Here is an excerpt from Boniour v. Citibank, N.A., 2006 N.Y. Slip Op 26525 (N.Y. Misc. 2006):

 

Apparently someone has taken the advice of Dick the Butcher in Shakespeare's Henry VI, Part II and "kill(ed) all the lawyers." Nowhere in this transaction does there appear to be the participation of any lawyers... At one time a real estate transaction consisted of a deed, a note and a mortgage; took about fifteen minutes to complete; and had the participation of an attorney for all parties to the transaction. The last time the Court checked, we were still in the City of New York where people do not even verify the score of the Yankee game without consulting counsel, and yet, lawyers have effectively been eliminated from real estate closings involving the refinance of mortgages and secondary loans, including home equity lines of credit. One could conclude therefore that these transactions have no legal implications. That, however, would be far from the truth. The borrowing of money secured by a mortgage is often a complex transaction with serious legal implications for all of the parties involved, especially the borrowers who are pledging their home as security.

It is a great case. The judge's opinion was very well written and he made a great point - even the simple transactions have very complex legal implications. Homeowners can't be expected to understand all of the aspects of the closing and they are often surprised by the terms they have agreed to.

Obviously, given a choice, most consumers are going to elect to proceed with a less expensive notary closing their loan than an attorney. Heck! Given the choice, most wouldn't purchase title insurance either. They have been led to believe that the paperwork is all standard and signing it is just a formality to get the loan. They place too much trust in their Realtors or loan officers.

Yes, even in an attorney state, mortgage fraud can occur. Even an attorney would not be able to detect some of the criminal activity that goes on behind the scenes. However, there are many instances where a homeowner would definitely be best served by an attorney's representation.

In an article in the Pocono Record, Home buyers testify against Peterson, I was shocked to learn that the settlement agent was accused of falsifying documents that resulted in a second mortgage that the homeowner was unaware of.

 

Yvette Owens of Blakeslee, who bought her home in 2001, testified she was saddled with an undisclosed second mortgage — to help cover the down payment to the primary lender.

Owens said she didn't learn about the second mortgage until after 9/11, when she quit her New York job after witnessing the trauma of the twin towers' collapse. Owens said she asked the Pennsylvania Housing Finance Agency for temporary mortgage assistance, and the agency told her it couldn't help since she had two mortgages on the house.

"I said I didn't have a clue of it," Owens said.

Owens contends she never signed for the second mortgage, but did sign a paper on which the mortgage information — including the title "second mortgage" — was filled in later.

"I signed a piece of paper that never said anything about a second mortgage," she testified. "It was just a piece of paper."

I'm sure most people think that they would never sign anything that wasn't filled in. However, in the flurry of paperwork that gets pushed across the table, I could see some innocuous looking document getting shuffled in that could be changed after the closing. All the notary has to do is say "please sign here." After signing 30 other documents, borrowers tend to stop asking questions and do as they are instructed.

I do agree, completely, that every real estate transaction is more complex than borrower's are led to believe. They need better representation. An attorney is held to a much higher standard than a notary and the consequences are much more drastic for an attorney who shirks his responsibilities. After all, a notary has much less invested in becoming a notary public than an attorney has in obtaining his license to practice law.

When you look at the cost of requiring attorney-only closings, you can't just look at the front-end fees. You also have to consider the costs to consumers that are poorly represented when they have to fix the mess after the fact.

I don't mean to say that there aren't good notaries out there doing a great job. But even the best of them are not capable of providing the same level of representation that an attorney can provide. A notary can only notarize... they can't advise... and borrowers need more of the latter, whether they realize it or not.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com