October 28th, 2015 3:56 PM by Gregg Mower
This is going to sound obvious to most folks that read this, but to others it might be a revelation. When you do a Real Estate transactions there are going to be hundreds of papers you will be faced to sign. Paperwork from the Real Estate Contract itself to hundreds of loan disclosures if you are getting a loan. Every one of those papers were derived by an attorney to protect the interests of the lender or Realtor, so if you are unsure of what you are signing you may want to ask your Realtor or your Loan Officer to explain them in more detail. If they can’t provide you with an adequate explanation of what the document is then get a second opinion from an attorney or another professional. In the past, it has been buyer beware but with the new laws that have been enacted over the last several years the responsibility of disclosing all material facts of the transaction has fallen on the Realtors and the Lenders. This may sound redundant, but I assure you it is not, for many reasons.
When I started in the lending business in 1984 the Real Estate Contract was a one page document and now it is over 12 for the initial contract with no additional addendums or additional disclosures. All in all you will sign over 50 different pages of Real Estate disclosures when you buy an owner occupied home. These disclosures are designed to tell you, the consumer, as much as possible about the home, the process, inspections you should have, what the condition of the property is as the Agent sees it, etc.. When you read them you will know they are designed by attorneys to protect the Real estate agent. You may even feel that you don’t understand what you are signing but feel forced to sign in order to get a house. This is not what they are designed for, you should know what you are signing and what your rights are as a consumer and your Agent has a Fiduciary responsibility to make sure you understand the disclosures. But when you are hot in negotiations with multiple offers on a house and your objective is to win the house with the highest and best offer you and your Agent may gloss over some details in the very papers you are signing.
An example of missing things when negotiating would be the inspections section of the contract. This is an area within the contract, usually on the second or 3rd page, where it states the inspections you want to make the contract contingent upon. If you decide that your offer would be best as an “as is” offer you just waived your rights to back out if the house has any major problems. Consumers miss this a lot and an Agent will “assume” their clients know what “as is “ means. This could be very costly to a home buyer in the long run, if they find something extremely wrong with the house before they close escrow and they do not have the means to fix the issue and they have to back out their deposit could be in jeopardy. Or worse, if they do close on the house with a known major problem, or they find out about a major problem after escrow has closed it could end up costing them the house itself. This would have been prevented if the buyers knew upfront the process and what they were signing and the ramifications of signing the documents.
The Real Estate paperwork has been evolving over time with new cases popping up all the time that will begat more disclosures. The disclosures for the loans have evolved so rapidly over the last several years due to the mortgage crisis that paperwork you signed last year for your loan is now obsolete with the new disclosure laws. So if you are trying to refinance your loan in today’s environment and you have done it a time or two you might see the new disclosures and be completely confused. Remember all of this is designed to protect you the consumer, but it does no good if you do not read what you are signing. In some cases you could be committing loan fraud and not even know it. If you sign documents that you are going to live in a property and you are really going to rent the property out you are committing loan fraud. Or if you are saying the property is going to be a rental and you are actually living in it you are committing loan fraud. You will be signing no less than 4 documents stating the occupancy of the property. Your loan officer only knows what you tell them so in effect you could pull your loan officer into a situation where they had no idea you were lying and it could cost them their license, but with the new disclosures that will be put solely on the borrower to tell the truth and the disclosures state that implicitly. So don’t try and say “my loan officer told me to do that or I would not get a loan” that will not fly with the disclosures you sign. The new Loan Disclosures give the borrower time to read them and get a second or third opinion of what they are signing before consummating the loan.
Now attorneys love to challenge these new laws, but most of the time they are ignorant of what their clients have actually signed and will wait till the discovery part of a lawsuit to find out their client has signed papers refuting what they told them in the first place. This ends up hurting their clients in that attorneys are paid on billable hours and it could take many billable hours before they realize their client actually signed paperwork that is contrary to what they are suing for. This process not only hurts the borrower, but it will hurt the lender, brokers etc. involved as they had to pay for their attorneys to defend them. But in the end what really hurts is the fact that borrower signed paperwork that they will make them pay for the lender’s attorneys to defend the lender if they lose and they do lose more than they win because of this. It is my opinion that attorneys that do this are self-serving and greedy agreeing to take cases like this, but they do every day to support their lifestyles like traveling to Greece on vacation and fancy cars etc.. I have even heard of attorneys agreeing to take monthly payments for their services to sue lenders, knowing that cases like that will take years to complete and in most cases go to the lender. Giving a client false hope is criminal but some of these leeches do it everyday advertising on the radio and TV fishing for suckers to sue lenders. Remember ignorance is no defense of the law so read your paperwork, disclosures are given to you to protect the lender against you.
I could go on and on about attorneys and their practices, but I want to make sure you understand the importance of reading your disclosures and if you don’t understand what you are signing don’t sign them. There is now a mandatory “cooling off period” when you get an owner occupied loan it is called “know before you owe”. Lenders have to make sure their clients have sufficient time to read and ask questions about fees, costs, and disclosures before they can lend them money. If you are getting a loan for a rental property, or a property that will be used primarily for business purposes those rules are waived as the government figures you should be educated if you can afford to investment in rental property, flips, commercial buildings etc. These rules in California are the “covered loan” laws and are qualified mortgage laws at the Federal level and most states have implemented their own versions of this. What all this boils down to is that you, the consumer, must read what you are signing and if you don’t then you could be committing loan fraud or you could lose your home in extreme circumstances. Most of these disclosures are sent to the borrower via the internet or email, so it may be a little more difficult to read, so if you would prefer you could ask to have your disclosures sent through the mail. If you choose this way the time frames extend out to close your loan, it could be 2 weeks longer if you choose the snail mail way but you may need that time so take it. In the end, we are all here to help our clients get the best possible deal with both the Real Estate transaction and the loan transaction. We don’t want to close a transaction just to make money, we strive to do the best possible work so our clients will refer their friends and neighbors to us. We are here to help so if at any time you need help on what you are signing we can help interpret the maze of paperwork, but we will always tell you to seek an outside opinion on legal questions as we are not lawyers and can’t give you legal advice or accounting advice. As always please leave your comments if you have them.