Intern in need of home buying methods

[MikeJaquish]

Originally Posted by CHTransplant

I'd probably use an attorney too, but that's not to say I shouldn't have a choice.

I've lived in states that used attorneys for everything - including a "binder," then the sales contract, then representing the bank, and finally representing you at the closing (with the other party's attorney). THAT was an expensive system. NC, by comparison, is a much more efficient and affordable process.

I've also lived in states that use non-attorney closing agents - and have had just as effective of service there as I would get from most attorneys in NC. There are times when attorneys are necessary. I can't say that's true for 100% of residential real estate closings.

So, you get closing services for free in other states?
Without an approximate "appropriate level" defined, I have to assume it is desired as a free service.

[CHTransplant]

Originally Posted by MikeJaquish

So, you get closing services for free in other states? Without an approximate "appropriate level" defined, I have to assume it is desired as a free service.

Mike - a monopolistic system that preserves for a protected profession all work within a given field cannot, by definition, yield the most efficient market price, which in my mind is an "appropriate level." It doesn't have to be a difference between free and $500. If attorneys are overcharging by $50 per transaction than an competitive market would bear, then it's too much. Consumers should have a choice.

[MikeJaquish]

Originally Posted by CHTransplant

Mike - a monopolistic system that preserves for a protected profession all work within a given field cannot, by definition, yield the most efficient market price, which in my mind is an "appropriate level." It doesn't have to be a difference between free and $500. If attorneys are overcharging by $50 per transaction than an competitive market would bear, then it's too much. Consumers should have a choice.

Do Attornies all charge the same for a closing?
If one charges $400 and one charges $500, is one of them overcharging?
What is an appropriate cost for closing? (Third request.)
What is their overhead and profit margin that makes you say they are overcharging, and how do you arrive at $50?
Is the $50 a theoretical number? Regarding a non-existent monopoly?
Do attornies ever initiate closing work, i.e., title work, engage surveyors, pay office staff, and then the work has to be duplicated or discarded due to delayed or failed transactions? Do attornies charge consumers for their costs when they duplicate work or can't close transactions?

What should their overhead and profit margin be to help make their fees appropriate in your eyes?

How will consumers know whether or not they need an attorney in the process? Will they chose a lower level of service based only on price?

Will alternate service providers with less legal background be as well-based in the legalities and issues that can arise in transactions that seem so easy?
If a legal opinion is reasonably requested at the closing table, will the lower level service provider be qualified to offer it?
Or, will closing be delayed while simple questions seek answers? Who pays for that delay?

Since an attorney is not needed to convey title, but attorney closing is the closing of choice for smart consumers due to the value the attorney offers in the process, how is it monopolistic?

[CHTransplant]

I'll let the words of the United States Department of Justice and the United States Federal Trade Commission (speaking specifically about North Carolina in 2001) answer your questions, Mike. (P.S. - Thanks for an engaging debate. You are an excellent advocate for a very legitimate point of view.)

Free and unfettered competition is at the heart of the American economy. The United States Supreme Court has observed, "ultimately, competition will produce not only lower prices but also better goods and services. 'The heart of our national economic policy long has been faith in the value of competition.'" National Society of Professional Engineers v. United States, 435 U.S. 679, 695 (1978) (citing Standard Oil Co. V. FTC, 340 U.S. 231, 248 (1950)); accord, Federal Trade Commission v. Superior Court Trial Lawyers Association, 493 U.S. 411, 423 (1990). Competition benefits consumers both of traditional manufacturing industries and of services offered by the learned professions. Goldfarb v. Virginia State Bar, 421 U.S. 773, 787 (1975); National Society of Professional Engineers, 435 U.S. at 689. In several states, non-lawyers compete with attorneys in providing real estate closings. Such competition has resulted in lower prices and more choices in how and where closing services are provided. The recently adopted Opinions [requiring attorney presence at closings] likely erect an insurmountable barrier against competition from these lay settlement services.
Opinion 2001-4 could harm consumers who refinance their homes in four ways.
First, it would force North Carolina consumers who would not otherwise pay for the services of a lawyer at closing to do so. Hence, the Opinion would injure all consumers who might prefer the combination of price, quality, and service that a lay settlement service offers. Moreover, North Carolinians would be deprived of the savings that could come from using an attorney's paralegal to perform the closing; they would have to pay the lawyer's higher rate.
Second, the Opinion, by eliminating competition from lay providers, would likely increase the price of lawyers' settlement services, because the availability of alternative, lower-cost lay services currently restrains the fees that lawyers can charge. Consequently, even consumers who would otherwise choose an attorney over a lay agent would likely pay higher prices.
Third, the Opinion could reduce competition from out-of-state mortgage lenders, harming consumers who find lower interest rates or more attractive refinancing packages with these lenders. Out-of-state lenders may not have facilities in North Carolina to close loans and often have contracted with in-state lay providers to close them. Some conduct their entire loan application and approval process via the Internet, simultaneously reducing costs and increasing customer convenience. The convenience offered by Internet-based mortgage lenders may be especially important to technologically savvy -- but busy -- families who live in, or are moving to, North Carolina's Research Triangle. The potential for lower rates may be especially important to borrowers in small communities that have fewer local lenders. The Opinion could diminish these options.
Fourth, if closings have to be delayed to wait for lawyers to be available to attend them, consumers may be hurt by changes in interest rates or delays in refinancing at lower rates. Opinion 2001-8, by continuing the ban on non-lawyer closings of real estate purchases, similarly deprives consumers of these benefits.
The use of lay closers has reduced costs to consumers in other parts of the country. In 1995, after a 16-day evidentiary hearing conducted by a special master, the New Jersey Supreme Court rejected an opinion eliminating lay closings. The Court found that real estate closing fees were much lower in southern New Jersey, where lay settlements were commonplace, than in the northern part of the state, where lawyers conducted almost all settlements. This was true even for consumers who chose attorney closings. South Jersey buyers represented by counsel throughout the entire transaction, including closing, paid $650 on average, while sellers paid $350. North Jersey buyers represented by counsel paid an average of $1,000, and sellers paid an average of $750. In re Opinion No. 26, 654 A.2d at 1348-49.(4)
The experience in Virginia was similar. Lay settlement services have operated in Virginia since 1981, when the state rejected an Opinion declaring lay settlements to be the unauthorized practice of law. A 1996 Media General study found that lay closings in Virginia were substantially less expensive than attorney closings.
Virginia Closing Costs

Median; Average; Average Including Title Examination
Attorneys $350 $366 $451
Lay Services $200 $208 $272

Media General, Residential Real Estate Closing Cost Survey, September 1996 at 5. In 1997, Virginia passed a law upholding the right of consumers to continue using lay settlement services. Va. Code Ann. §§ 6.1-2.19 - 6.1-2.29 (Michie 1997). (At the time, the state Supreme Court had been considering an Opinion similar to the ones adopted by the North Carolina Bar. Proposed Virginia UPL Opinion No. 183.)
There is no reason to expect North Carolina's experience to be any different. Indeed, we have received anecdotal evidence from industry representatives that refinancing closings performed by non-lawyers are less expensive than those performed by lawyers. One representative told us that lenders may pay $200-250 less per closing. At least a part, if not all, of the savings would be passed on to consumers as borrowers.

[Silverfall]

Originally Posted by CHTransplant

I should know better than to debate Vicki, but ....

No, I would not expect those in the industry to agree with this, and there's certainly room for differences of opinion. My recommended reform would be to end the practice of commission sharing. Listings agents should charge a (presumably smaller) commission that is designed to compensate for their services alone. Buyer's agents should charge their clients an independent commission (the payment of which could of course be thrown into the deal with the sellers).

How much would you be willing to pay a buyer agent?

Originally Posted by CHTransplant

Wait, do you work for the state bar Vicki? If they were truly less expensive, sure, but I think that's rarely the case. And the value of their services is debatable. I've used some decent attorneys for closing, but my impression has almost always been that they are looking at the papers for the first time as they pass them to me for signature. To that point, their legal assistants have been doing everything.

The only reason they can charge $500 is if the paralegals do most of the work. Otherwise closing costs would be significantly higher. Out here escrow officers are licensed and fees run around $900 split between buyer and seller.

Originally Posted by CHTransplant

Sadly, I think we've learned that some of the more exotic mortgages, often pushed on very unsophisticated buyers, were not at all understood, and now people are losing their houses when their payments reset. And even on "routine" mortgages, do most people understand anything more than the "you pay you stay" terms? For example, what happens when they run into financial difficulty. What rights do they have? How long do they have before they risk losing their house? etc. Should we all just turn a blind eye to the "worst case" scenarios and just figure we'll sort that out if the time ever comes?

At some point people have to be responsible for their own behavior. Did unethical things occur. Yes, of course. Did some mortgage brokers explain things to buyers AND THEY STILL DID IT. Yes. Some people walked in with eyes wide open and hoped for the best anyway.

Originally Posted by CHTransplant

My experience is it comes down to timing. Sure you can ask, but often the documents aren't ready until the day of the closing, and you can't seem to get preliminary copies. And if you want time to review, you'll have to reschedule the closing - and probably for more than the couple of days you need to look them over. Oh, and then the documents all need to be re-done again.

Why wouldn't you tell your agent that reading the docs is important to you. Write in the OFFER itself that docs will be presented to you 3 days prior to signing. I have picked up MANY documents for clients over the years and delivered to them to read. Out here most say it takes 1-2 hours to read them.

Originally Posted by CHTransplant

I don't think it's so simple, and I the fact that so many borrowers don't understand it suggests it's not as helpful as our government regulators seem to think. For example, APR fully amortizes lending costs over the full term of the loan, but few loans actually go to term. If the goal is to communicate "real cost," they're missing the mark, and making the deal seem better than it is, but spreading the costs out over a period that will never happen. In truth, high-fee loans are a lot more "expensive" (comparatively) than APR shows.

You know to have a 5 year APR, 7 Year APR, etc. would be insanely confusing. The APR is one simple calculation to help buyers compare apples to apples when shopping for a loan. It's just meant to be a comparative tool. That's it.