Several weeks ago I heard a Congresswoman from Ohio questioned about the mortgage/subprime debacle. The CNN piece chronicled the fate of a borrower losing her home because her monthly payment under the terms of her mortgage doubled in the first year. The homeowner was looking at foreclosure and could only say she wished she had had a real estate lawyer advise her when she closed the loan. The Congresswoman said more real estate attorneys were needed to assist people like this borrower deal with her situation, and help homeowners avoid getting into similar situations in the future. Wait, what? Did I hear her correctly? She’s actually encouraging folks to hire a lawyer to assist them with their residential real estate closing?Over the past 15 years we have been hearing from our State legislators, consumer groups, title insurance companies, and lenders that residential real estate closings are not the practice of law and that lay persons should be allowed to conduct them. In order to make way for the lay settlement agency, very carefully worded legal ethics opinions and statutes have been written in painstaking prose to outline what exactly is and is not the practice of law in the residential real estate closing context. Bottom line, unless someone is a lawyer licensed to practice in Virginia, that someone cannot explain the meaning of documents used in a Virginia real estate closing. To do so would be practicing law without a license. The borrower in the gentle Congresswoman’s district didn’t have a lawyer at the closing to help her understand the meaning of the documents. She had probably received an explanation from her loan officer 30 to 60 days before the closing, but she did not receive explanation from an independent voice who might have explained their meaning in an unbiased way.
It is not unusual for colleagues and people in the industry to ask me why I continue to close residential real estate transactions. To be sure, over the past decade, lawyers have lost some of this work to lay settlement agencies. Closing simple residential real estate transactions is highly competitive, which has driven fees down over the years, making the practice area less lucrative. For lawyers, real estate work ranks as one of the highest areas of malpractice claims. But, having lawyers perform this work pays dividends to the community that defy objective measurement but are real nonetheless. Every closing that occurs without incident and with competent legal review keeps the parties at least well informed, and almost always out of court, benefitting the parties and the community. Bottom line, lawyers assisting the average homeowner in real estate transactions provide a valuable service to not only their clients but also to the community.
A lawyer sitting at the table with the Ohio borrower mentioned above may have saved her from signing those documents thus saving her the heartache she is experiencing now. Think of the hundreds of thousands of loans with unconscionable terms that were closed in The Boom that might not have closed if lawyers had been present representing borrowers and informing them of the terms of their loans. To be sure, the law allows each of us to make bad business decisions, and holds us accountable for those bad decisions, and with or without a lawyer, some (maybe most) would have signed the papers any way. But I have to believe if lawyers had been representing borrowers in all of those bad loans, some of them, maybe many, would not have closed and the wave of foreclosures washing across the country might be smaller.
So, amen to the gentle Congresswoman from Ohio. Heed her advice and hire a lawyer to assist you with your next real estate transaction. To borrow a phrase from the CPAs, never underestimate the value of a lawyer.
