Bankruptcy

Reading Redux

By Angie Littwin

Last year around this time, I wrote a Credit Slips post about a law-professor friend whose realtor expressed shock and dismay when she and her husband insisted on reading every document she gave them to sign regarding the house they were purchasing.  In the post, I somewhat sanctimoniously referred to myself as someone who always reads her contracts.  This year, it was my turn, and I have to admit that I did not pass my own test.

I faithfully read every home-purchasing form contract my realtor and lender sent me from the day I made the offer until the day before closing.  I even actually managed to do something productive for all my trouble; I switched inspectors because the first one insisted on a rights-waiving contract.  But partway through the closing itself, faced with two inches of papers to sign, my resolve wavered.  I was tired and hungry, and my mind kept circling around to all the moving-related errands I needed to do in Austin before the end of business hours and my flight out of town the next day.  (A word to the wise:  Never go to a closing on an empty stomach.)  So I took a few shortcuts.

Fortunately, I have a great realtor who has been in the business a long time.  She was able to identify all the pages that were state-mandated disclosures.  Those, I felt comfortable signing based on an oral description since there was absolutely nothing I could do about them anyway.  Then, I started skimming all paragraphs that began with something like, ?In the event of default, Lender may?.?  I?m about to starting teaching Secured Transactions so I already know how terrible things can be once you go into default, and I?m able to count the ways that can happen. 

Even with this method, I did find a few unsavory clauses.  If I make any changes to the borrower listed on the title ? say, if I were to get married and add a husband on the title ? and forget to tell my lender, the bank has the right to accelerate the loan, demanding the entire amount immediately.  Meanwhile, if the lender sells my loan to an entity I feel uncomfortable with or have never heard of, I have no right to oppose the sale and am entitled to only fifteen days notice. (After finding these provisions, what was I supposed to do? Not sign?) But even so, by the time I got to the final page ? which, eerily enough, happened to be the one where I acknowledge that I am bound by the written word of the contracts notwithstanding any oral representations to the contrary ? I was a nervous wreck.  What if there was there was some terrible clause hidden in all those papers, one that had I found it, would be bad enough to make me halt the entire process?  In this case, I hope I?ll never know, because I just couldn?t bring myself to go through the mound of papers again.

As I was leaving, I had an idea that nearly caused me to smack myself on the forehead I felt so dumb.  Why hadn?t I asked to receive a copy of the papers ahead of time?  There are a variety of ways to address the problem of consumers making the largest purchase of their lives based on forms they usually don?t read, often can?t understand, and couldn?t do much about anyway.  But at the very least, it should be standard practice to distribute these forms beforehand, so that people have the option of reading them at their leisure, preferably after a good meal.  I know it wouldn?t help everybody, but it probably would lead to a few more informed home buyers.  If borrowers received the forms far enough ahead of closing, a sophisticated few might even choose their lender or broker based in part on the contracts.  In the meantime, the next time I buy a house, I?ll make sure to eat a hearty breakfast.

Full post as published by Credit Slips on June 09, 2008 (boomark / email).