At a co-op closing this week, where I represented the sellers by power of attorney, I sat across from the buyer's counsel, who dutifully ground through the loan documents with his client, a first-time home buyer. As I checked my Blackberry to pass the time, I listened to the attorney describe in mind-numbing detail, page after page of the bank's documents, pausing to get his client's signature after each explanation was completed. All around the closing table, folks who have watched this drill on hundreds of occasions, do what's always done at every closing... wait.
Rethinking the Loan Process
At that closing, the bank's attorney stated the "golden rule" of lending: "He who brings the gold, makes the rules." The crowd chuckled. That being said, the process by which a bank completes the loan documentation at the closing is about as up to date as applying a wax seal. Each bank has a slightly different set of documents, based upon whether or not the loan will be sold immediately after closing to Fannie, Freddie or to an investor. Basically, the documents are similar: a note, a security agreement or mortgage (depending upon whether it is a co-op or condo), a HUD Settlement Statement, and numerous other documents which are either required by law (as revised by recent Federal legislation and rule making) or by the bank's own lending policies. With all due respect to those charged with the responsibility of attending to the bank's closing details, the process consumes an excessive amount of time. There is no reason why a majority of the loan documents, with the exception of the note and security documents, can't be signed at application or upon issuance of the loan commitment.
Why Signing Before Closing is a Better Idea
Although efforts are being made to educate and to protect the consumer from nefarious lenders and their minions, a closing, with its time limitations, is not exactly the best place to start explaining the implications of the loan documents. Most purchasers are in a daze at the big finale and really don't comprehend the significance of each piece of paper which is briefly described to them before execution. Your typical future homeowner is thinking about the ton of money he or she is about to spend, or the costly renovations, or the move-in date, or whether it's the right decision in the first place. You get the picture. Understanding the "name affidavit" or some other boilerplate document is not at the top of the list. It would clearly be in the consumer's best interest to have that pile of documents in advance of the closing, so there would be a real opportunity to understand exactly what is being signed. In addition to speeding up the closing geometrically, the consumer would be better protected from signing a document he or she truly doesn't understand -- unfortunately, an occurrence at each and every closing. When I posed this suggestion at the closing table, after a few half-hearted attempts at telling me why it wouldn't work, the bank attorney finally said, "Are you trying to take away my job?' Well, actually, just trying to make it significantly easier.
Business as Usual
A closing represents the culmination of the efforts of a number of people: the attorneys, the brokers, the bank and its counsel, the managing agent, and of course, the seller and purchaser. Those involved in the process understand that a certain amount of time will be required to get to the finish line: that being the delivery of checks in exchange for ownership of the property. In the digitized world we live in today, however, a closing takes way too long and needs to be modernized. Lenders are not the only time-wasting culprits, but expediting the review and execution of loan documents would be a great place to start.
On to the Next One
The real estate economy thrives on closings. When handled the right way by all concerned, it represents the best efforts of the professionals, good feelings on both sides and the ultimate "win win" scenario. But there's room for significant improvement in the time it takes to get to the handshakes.