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.
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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