A Simple Transaction

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A Simple Transaction
by Robert Franco | 2007/01/25 |

A New York City judge, Judge Straniere, made some very insightful observations in an opinion he wrote in Bonior v. Citibank, N.A., 2006 N.Y. Slip Op 26525 (N.Y. Misc. 2006). The case was brought by a borrower over closing costs and pre-payment penalties, but the most important thing about this case is that the borrower was not represented by council and the comments the Court made about that lack of representation.

The Court's observation, in part:

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.

The Court went on to note that there were several problems, or at least inconsistencies, with this equity line that may have been properly dealt with had an attorney been there to represent the borrower. In a very detailed analysis of each issue, he concluded, sarcastically, with "But a home equity line is a simple transaction and you do not need the expertise of an attorney."

The opinion is an excellent read and if you have access to it, I recommend you look it up. However, this is just the introduction to my topic for today.

Any real estate transaction, especially these days, is a complicated one for the consumer. It has gotten so complicated that many of us in the industry have a tough time with all the changes - how can a consumer expect to navigate through it without representation?

In a few areas, it is common to have attorneys present at the closing to represent the parties. Though, personally, I have only experienced it with commercial transactions. I have heard that in some areas it is the custom to have round table closings with both the buyer and seller represented by their attorneys. All the title agent has to do is pass the documents to the attorneys who review them, advise their clients of the implications and have them sign. That sounds pretty good to me.

Besides, who better to know whether the consumer has gotten all of the appropriate disclosures? One of my biggest complaints with RESPA and the Affiliated Business Arrangements (AfBAs) is that the consumer doesn't even know what they are supposed to be informed of, unless someone tells them. For instance, if the lender is referring the title order to an affiliate, they must disclose their relationship with the settlement service provider at the time the loan application is taken. If it is not disclosed, how would the consumer know that it should have been?

A local attorney representing a borrower would know the landscape of the local industry and they would spot a sham AfBA. They would be able to help police the RESPA requirements and keep the system in check.

Furthermore, an attorney can better make sense of the terms of the transaction and advise their client when they get into a situation that they should steer clear of. As a title agent, I always try to highlight the terms to the borrower, but I can't "will" them to understand the implications. As a non-attorney, I can't give them legal advise - but, someone should.

Maybe it would be a good idea to require that the parties to the transaction have legal representation at the closing. Whether this would best be accomplished by HUD or state regulators, I don't know. But, proper representation would be best for the consumer and help police the industry.

Would it add additional costs to the consumer? Probably, but the additional protection it affords would be well worth it. In some cases, it may save the consumer from getting into a bad situation before it costs them something more... like their home.

I don't advocate the use of an attorney in the real estate closing process because I'm in law school. Rather, I'm in law school because I advocate the use of an attorney in the real estate closing process.

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

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Source of Title Blog

Robert A. Franco The focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

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