As the lawyer woke up after surgery, he said” “Why are all the blinds drawn?” The doctor answered: “There’s a big fire across the street, and we didn’t want you to think the operation was a failure.”
All lawyer jokes aside, paying both their own legal fees and those of the lender is no laughing matter for borrowers at closing. After all, with conventional mortgages, the same lawyer typically acts for both the lender and the borrower. So why 2 sets of lawyers in non-bank mortgage transactions?
The first reason flows from the rules that govern lawyers. The Law Societies want to see borrowers independently represented in private mortgage transactions so they put certain restrictions on lawyers that preclude them from acting for both lender and borrower in situations.
The second reason also flows from conflict – namely that if the lawyer acted for both the borrower and lender, then if the mortgage goes to foreclosure, that lawyer may not be allowed to act for either of them. Lender’s choose their lawyers carefully and don’t like the idea of having to retain someone else because of a conflict, so they insist on their own lawyer at closing.
While the borrower may not like the extra cost, they will be getting legal advice at closing that is truly independent and that they know is free from conflict. When we think about the amount of money at stake and the roof over someone’s head, this probably isn’t all bad.