If you've even been half paying attention to the media coverage on mortgage litigation lately, you have probably heard about getting a loan document "audit." This is where you pay thousands of dollars to some self-titled called forensic loan auditor to prepare a nonsensical report that identifies de minimis technical violations in your stack of loan documents from a loan you did five years ago - a report that you are told to take to an attorney and sue your lender into submission to get the loan modification that you deserve. You know that one? Well, that's not what this article addresses. What this article does address is the question of whether it's worth having a competent knowledgeable and qualified attorney explain the complex language of your loan documents to you before you sign on the line which is dotted. Five years ago people did not even blink at the fact that their loan officer got huge amounts of money for selling them a predatory loan.
Allow me a small digression into the loan business - a "point" is what loan officers charge to do loans, and one point is one percent of the loan amount. That is, if your loan was $600,000.00, one point was $6,000.00. Thus, earning one point for shuffling some papers and entering some numbers and data into a computer program would be pretty good money. However, many loan officers would not charge just one measly little point. They would charge a few points on the front end of a loan plus get a few rebate points on the back end. The more toxic the loan, the more back end points were paid. If a loan officer could talk you into a hard three-year prepay, then he could earn some extra back end points. If he could jack up the interest rate, he could earn some extra back end points. If he could steer you into an option arm instead of the fixed rate mortgage you really needed, he would earn some extra back end points.
Loan officers only get paid when the loan funds, so it would take the epitome of honesty to put a borrower's best interests ahead of his personal bottom line. There was one owner of a large mortgage company who used to say that his favorite sound in the whole wide world was "the cold hard slap of five points" on some unsuspecting borrower. That's right… five points… or $30,000.00 on one $600,000.00 loan. Back in the heyday of mortgages, selling one loan a month was done without even trying - and that means some serious cash was made.
Even in today's market, loan officers only get paid when a loan funds. The mortgage meltdown has made many people exercise caution when obtaining a new mortgage (whether to buy a home or refinance). However, I would bet that most people still don't understand their loan documents as well as they would like. If you are buying a $300,000.00 house and your loan amount is $240,000.00, you might get lucky and pay your loan officer just two points ($4,800.00). The question you might want to ask yourself is whether it's worth paying an attorney to provide independent and unbiased information about the loan and the loan documents before you sign. The attorney who is paid for time and advice has no incentive to give you bad advice or tell you that a loan is good when it is not. A good mortgage attorney could review your loan documents and explain your loan's terms to you in plain easy to understand language in about an hour. The cost for such an education might be about $300.00, or just 6.25% of the amount you will pay the loan officer - that's less than sales tax in most counties.
If you are buying a home or refinancing, your loan officer might call you at the last minute of the last day you need to sign your loan documents to tell you your loan documents are all ready to sign. He will tell you that the documents are time sensitive and have to be signed right away or they will expire and need to be redrafted. And, if that happens, your interest rate will go up. This kind of time pressure should raise your suspicion. Consider telling your loan officer that you will be talking all of your loan documents to an attorney for review. Many attorney's offices have a notary public on site, so you can not only review your documents with the attorney and become educated about but your loan but sign your documents at the same time. Thus, you can tell your loan officer that you will have everything signed and returned to him in a day.
In my opinion, the money you spend for an hour of attorney time is well worth it when compared to the money you are pay your loan officer and when compared to the amount of money at stake if you get loan terms that are not what you wanted. It is also my opinion that if your loan officer tells you that you are wasting your time and money by getting a lawyer's review, then a red flag has been raised about that loan officer's integrity.
Of course, as a real estate and mortgage attorney, I am biased, so the above is just my opinion. However, even my biased opinion is sometimes right. My law firm charges $300.00 for a one hour loan document review and consultation, and same day appointments are often available for such services. We will review documents for individual borrowers, or for the clients of real estate agents. If you are a real estate agent who wants to offer your buyer clients an additional source of information and advice, consider paying our fee for your clients. Instead of buying your client some ugly house warming gift that will end up being re-gifted, you can buy your clients piece of mind. Heck, you can deduct the amount from your commission, and it would hardly be missed. Bottom line? Whether you hire my law firm or another, an hour of attorney time is well worth the investment when you are talking about hundreds of thousands of dolars.
Paul J. Molinaro, M.D., J.D.
Attorney at Law, Physician, Broker
Fransen & Molinaro, LLP
980 Montecito Drive, Suite 206
Corona, CA 92879
** This post and all others I make on Internet are for informational purposes only. None of the information or materials I post are legal advice. Nothing I post as comments, answers, or other communications should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. While I try to be accurate, I do not guarantee accuracy.