Real Estate Closings
Buying a home is often the largest purchase a person makes in his or her lifetime. Lately we have seen an erosion of consumer protection in the home buying process in North Carolina. North Carolina has always required an attorney to be part of the closing process, since it is considered the practice of law. A few years ago, however, the Federal Trade Commission pressured the State Bar Association to change their position regarding closings, which has opened the door for numerous settlement companies to enter into the arena. This, despite the fact that both attorney fees and title insurance rates are one of the lowest in the nation. State Bar Ethics and Opinions
The State Bar did not cave-in completely though, as it insisted that the issuing of a title opinion is still part of the practice of law. That means that in order to get title insurance (which would be required for practically any loan), an attorney must sign off on the opinion, even if they are not otherwise involved in the process. Practically, this has led to attorneys being paid $100-$150 a pop to sign off on opinions—in many cases—without even reviewing them adequately. Additionally, settlement statements I have come across from settlement companies cost far more than the charges of a typical attorney, so the benefit to the consumer is non-existent.
Another problematic area is the proliferation of affiliated business relationship. The Realtor pushes his or her lender, and title insurance company. The builder offers to pay $2000.00 in closing costs if you use their lender and their attorney. Some of these practices (depending on whether kickbacks are involved) may even violate the Real Estate Settlement and Procedures Act (RESPA). - See the RESPA article in the Fraud and Bad Practices section of my website. RESPA
My advice is twofold. Be aware of your rights and know that you are never required to use a particular provider of services. If a Builder is paying closing costs to use a particular lender, make sure you understand the interest rate and all fees from the outset and compare them to other lenders, as you may save more overall by using a different lender. Finally, even if you signed a contract requiring you to use the Seller's attorney, the State Bar ethics opinion 97 FEO 8 says that the Attorney can only represent you if the "attorney reasonably believes that the common representation will not be adverse to the interests of either client, there is full disclosure of Attorney's prior representation of Seller, and Buyer consents to the common representation." My reading of this is that if the Attorney makes the required disclosures and you don't consent to the representation, he or she is ethically prohibited from representing you.
I would be interested in hearing from anyone that has had a bad experience with a non-attorney settlement company, whether it was for outrageous charges, legal advice given by a non-attorney, and/or lack of courtesy or responsiveness to your needs. If it is warranted and you are amenable, I can help you report it to the State Bar so that it can be investigated further.
Please see the various links for more information on different aspects of the real estate process.
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