Low housing prices and low mortgage rates are encouraging many people to refinance their homes or get a mortgage to purchase a home. These mortgages are the biggest transactions in which most people will ever participate. Yet, aside from the purchase price of the home or the interest rate on the loan, most people know very little about what they are paying for. In this article, I explain one of the many fees of all mortgages, the attorney fee.
You may be surprised to know that, as part of your closing costs, you pay for your bank’s attorney, I repeat, the bank’s attorney. Unless you specifically hire an attorney to represent your interests, the only attorney at the table will be the bank’s, and is there to look after the bank’s interests, not yours.
The actual job of the attorney is to protect the bank and make sure that its collateral, your home, is secure. To that end, the attorney makes sure there is good title on the home and that the closing documents are properly executed and the mortgage is properly recorded at the registry of deeds. There are other ministerial acts involved as well, like handling the money for the transaction and conducting the closing itself. Clearly, with hundreds of thousands of dollars at stake in each transaction, the bank has a strong desire to make sure the closing is done properly and by an experienced and trusted attorney or title company.
When you make application for a mortgage, federal law requires that the closing fees, including the bank’s attorney fees, be disclosed to you up front. Banks are diligent in this disclosure. However, what they disclose, on the document called the Good Faith Estimate, is not exactly the attorney’s fee, but the maximum the bank will allow the attorney to charge at the time of the closing.
What is the problem, you ask? I know of no attorneys who close loans for a bank that do not also have escrow accounts or other bank accounts with that particular bank. In fact, a bank will not permit an attorney to close a loan for them if they do not have an account with it. You will not find this written anywhere. But this is practice. It may also be a violation of federal law, of the sort prohibited by the Real Estate Settlement Procedures Act (RESPA), a law that’s supposed to protect consumers from unscrupulous business practices. The attorney invariably charges the maximum amount for their service, as disclosed to the consumer on the Good Faith Estimate, even if the same service could be procured for less. In return, the bank gains another customer, the attorney, and any potential referrals that may come from the attorney. The bank’s list of approved attorneys is small. It is also extremely difficult to get on a bank’s approved attorney list as the list similar to a good-ol’-boy club.
Why does this matter to you, the consumer? The borrower almost always ends up paying too much for their closing and is at the mercy of what I have come to call “prima donna" attorneys. How do I know this? I have been in the business for a decade.
Just yesterday, a client I represent in a purchase transaction was told by the lender’s attorney, that in spite of my client’s high fever and flu, the firm’s attorney was too busy to accommodate a local closing and is making my client travel 40 minutes to their office to sign documents. This is not unusual. Last month, another bank attorney refused to close at the registry (where most purchase transactions take place). After the closing at his office, he made the buyer and seller wait at his office while he traveled to the registry, recorded the documents and then traveled back to the office, before he would give the seller her proceeds from the sale and the buyer could receive her keys to her new home. His justification was that he wanted to close in the comfort of his office.
What can you do about all this? Nothing will change until the customers demand better service. Ask your bank for a list of their attorneys and their actual closing fees for comparison. It is possible that there is some variation. For example, I close loans for some banks and I have never charged as much as the lender would allow. Ask who of their attorneys will close at a time and place that is convenient for you. This is not out of the ordinary. I have closed loans in mall parking lots to accommodate borrowers. Lastly, if you are not satisfied, you can ask a trusted closing attorney for a list of lenders that that attorney represents. Then take your business there.
Note: Marie Sapienza, Esq. is a general practice attorney with an office in Hampstead, NH. She can be reached at 603-329-5200 or emailed at [email protected].