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Friday, June 25, 2010

Does anyone read their mortgage documents? Judge Posner didn't.

According to Above the Law, Judge Richard Posner recently admitted at an American Constitution Society conference on regulation that when presented with voluminous documentation at his home equity closing, he signed on the dotted line without reading the paperwork.  David Lat, the Above the Law blogger, was incredulous:

"This generated laughter from the crowd, due to Judge Posner’s status as one of the greatest legal minds of his (or any other) generation. It was amusing to imagine the brilliant Posner flipping page after page of paperwork and mechanically scribbling next to every “Sign Here” flag, without even bothering to read what he was signing. It’s the kind of behavior one would expect from a person earning $35,000 and a buying a $600,000 home two hours outside of Phoenix, circa 2006 — but not from one of America’s leading jurists."

Point taken, but I'm with Judge Posner.  I have been a commercial real estate lawyer for ten years.  During that time, I have purchased two homes.  In both cases, I requested copies of the title work, exception documents, and loan documents from the title company and lender, respectively, prior to closing.  In both cases, they acted like I was completely unreasonable.  The title company couldn't understand why I wanted to review exception documents at all, and the lender couldn't see how the loan documents could be generated prior to closing.  In any event, they both implied, why bother reviewing documents that you cannot negotiate?  (By the way, the purchase agreement was also pretty much non-negotiable.  Standard realtor form, just check the boxes and fill in the blanks.)

This is in stark contrast to commercial real estate deals where everything, no matter how minor, is negotiated.  And I get the business reality -- the $20 million shopping center deal can absorb the transaction costs of negotiation while my house can't. 

But if Judge Posner and I both accept that reviewing form mortgage documents that cannot be changed is a waste of time, I wonder if the conventional wisdom of the mortgage crisis is holding far less legally sophisticated borrowers to a higher standard.

Tanya Marsh

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I'm with Tanya and Judge Posner, too (good company, I think). I use it as a teaching point. I ask the class how many of them have signed leases or real estate sales contracts recently. Then I ask how many read every word of the document; how many asked questions; how many asked to change anything in the form contract they were presented. I get a few laughs when I suggest that those who did any of those things were probably just feeling obligated to show some extra scrutiny because they were law students; then I tell them that I do the same thing. There just isn't any realistic possibility for negotiating contracts for individual housing in the market today.

Posted by: Matt Festa | Jun 25, 2010 8:44:10 PM

I was purchasing a hundred thousand dollar house. I asked to review my documents. Everyone acted like that was the first time they'd heard anything so crazy. I've since discovered that maybe it was.

Reading the documents made me question everyone. It seemed the deal was set up in order to make me default. If I was a day late, for any reason-like, even if I'm hit by a car, the bank can't take my house back on the spot, and nobody is allowed to step in and pay for me, either. It actually said this, in a more wordy, lawyery way. Meanwhile, I was expected to indemnify the bank for anything it might do (I had to look up indemnify, as my real estate agent supposedly didn't know what it meant), and anyone else involved, including the lawyers for the bank, who wanted the right to change anything that they might feel like, now and in the future, forever. I still have this insane stack of papers, because I am waiting to compare it to someone else's to see if they are indeed "standard." As yet, nobody I know has a clue where their mortgage paperwork is. And I think i see why the country went spiraling down the drain. Do people realize that their signature is binding?

The bank calls the overly stringent lack of grace period, (even if THEY were to misplace my check) "protecting itself" and the realtor called it "standard," but I have no way of knowing because nobody seems to have read their mortgage paperwork. Though she said my paperwork was "standard," my realtor could not tell me if hers said the same. Initially, I admit, I didn't believe her.

It's been about five years since I didn't sign those papers which protected the bank, but would have left me with less rights than a renter. The whole gang of thugs threatened to sue me, as no one had thought to add my agreeing to the terms as a contingency in order for the deal to go through.

I refused to sign, anyway, since losing my closing money seemed vastly preferable to losing a home I'd sunk my life's savings and my heart into.

Posted by: Hannah | Jun 25, 2013 6:37:33 PM

Sorry, I meant to say that even if I were hit by a car the bank COULD take my house back on the spot, not "can't."

Posted by: Hannah | Jun 25, 2013 6:40:46 PM

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