In a recent case entitled Bonior v. Citibank, recently published in the New York Law Journal, Judge Straniere of Richmond County rendered a decision on home equity lines of credit. In the case, Judge Straniere underscores the value of a lawyer in refinance transactions.

“The last time the Court checked, we were still in the City of New York where people do not even verify the score of the Yankee game without consulting counsel, and yet, lawyers have effectively been eliminated from real estate closings involving the refinance of mortgages and secondary loans, including home equity lines of credit.”

The judge pointed out a glaring error in judgment made every day by thousands of people: not retaining an attorney to represent them in refinancing their homes, a person’s largest and most valuable asset. People often use their homes as security for loans. A loan, however, is more than just an interest rate and a principal amount. It might have changing interest rates or hidden charges, such as a prepayment penalty or a yearly maintenance fee. In addition, with an adjustable rate mortgage, the formula for computing the interest rate (and subsequent changes) can be confusing. Without the advice and assistance of an attorney, many people do not know what they are signing.

An attorney with experience in real estate can spot an unreasonable fee being charged by a lender, mortgage broker or title company. An attorney can ensure that the transaction goes smoothly and that the loan documents accurately reflect what the borrower was told. Moreover, an attorney can ensure that all of the issues involved in the closing have been addressed beforehand, and that issues do not cause a problem at closing or possibly lead to an adjournment. An adjournment might lead to the bank and/or title company charging extra fees to the borrower, aside from the fact that the borrowers waste their time attending a closing that doesn’t even close, only to come back another day.

What many borrowers fail to realize is that the title company and the closing attorney do not represent the borrower’s interests. The closing attorney represents the lender, and the title company is a separate entity which issues an insurance policy and records the documents. Although these individuals may assist the borrower with signing documents and completing the transaction, their loyalties do not lie with the borrower. There can be a myriad of issues that might arise that make the interests of the lender and borrower at odds, and the loyalty of the attorney will be to the lender.

Working with an attorney before the loan application is submitted can save the borrower from paying unnecessary amounts, such as the mortgage recording tax on a refinance. In some cases, a mortgage consolidation can save money and makes the most sense. In other cases, it is not the best solution financially for the borrower, because the costs of consolidating outweigh the tax benefits. An attorney can determine the best approach.

Another concern is the issue at hand in the Bonior case – early termination of a loan. The borrowers in that case claimed that they did not know there would be an early termination fee on their mortgage. An experienced and knowledgeable attorney would have alerted the borrowers to this fact, and avoided any confusion. Had they consulted with an attorney, the borrowers would have been able to decide if they wanted to be burdened with an early termination fee.

The Bonior decision strongly urges lenders to suggest to a borrower that they hire an attorney to represent their individual interests in a refinance transaction, and even urges the New York State Legislature to pass a law that requires lenders to disclose to borrowers that they have the right to counsel. As in most areas, representation by competent and skilled counsel is a wise investment when financing your real estate.