Prospective home buyers turn to real estate agents and loan officers when they want new homes. They rarely hire a lawyer.
Diane Cipollone is trying to change that.
Cipollone, an attorney with the nonprofit law firm Civil Justice Inc. in Baltimore, has worked with scores of homeowners in danger of foreclosure, and she's convinced that many could have avoided trouble by consulting with an attorney before buying their home or refinancing their loan. No one walked them through the financial implications or pointed out booby traps in the mortgage documents — until it was too late.
Now, Cipollone is managing the new Maryland Mortgage Fraud Prevention Project, which links homebuyers and refinancing homeowners with free legal help — before they sign on the dotted line, not afterward. The program is open to people who haven't owned a primary residence in Maryland for the past three years and are buying one priced at $425,000 or less, along with homeowners wanting to refinance into a loan of that amount or less.
She talked to The Baltimore Sun recently about the effort, the problems she's seen and why she thinks legal advice is critical.
Question: Do you think an attorney's help is really as necessary in these days of vanilla fixed-rate mortgages as it was when subprime loans and negative amortization were all the rage?
Answer: Oh, absolutely. Somebody can get a decent fixed-rate mortgage right now, if they have decent credit. But is the homeowner going to know whether all the terms and closing costs are reasonable? Are they going to know what their rights are if something changes? … A lot of the tactics that led to the crisis are still in effect. Bait and switch, for example.
Q: How many attorneys have you trained for the mortgage fraud prevention project, and how many buyers and homeowners do you think you could reach?
A: We have more than 100 attorneys. … We hope to help, at the very least, 200 to 250 homeowners [in 2010].
Q: You've got more in mind than 200 to 250 people, though. What are you trying to accomplish beyond the project itself?
A: The broader goal is to change the way people think about buying homes, taking out a mortgage or refinancing a mortgage. The foreclosure crisis could have been prevented if homeowners throughout the country had access to reasonably priced legal services and realized that it's in their best interests to get an independent third party to advise them.
Q: Are you hoping to change state law to that effect or just to change minds?
A: I'm not trying to mandate that somebody has to have an attorney — that's not realistic. But what I think is a realistic goal is to inform people of the advantages of having legal assistance before they sign legally binding contracts. … It's simply preventive medicine.
Q: The help offered through your project is free, but people who aren't eligible would need to hire an attorney. What would you say to those who aren't inclined to pay for advice beyond what they're getting from their real estate agent and mortgage company?
A: Everybody should be using licensed real estate agents; they of course should be using licensed brokers and licensed lenders. But all of those professionals work on some type of a commission basis. They are paid if the transaction goes through. Now, that's probably the only way any of us could afford to use those professionals, but based on that, the homeowner needs somebody who can simply give totally independent advice — and legal advice. … Would anybody stand up there and say, "$400 for a home inspection adds to the cost of buying a house, and we think that's an unnecessary cost and expect somebody to go out and do their own home inspection"? Of course not.
Q: Some free legal-help programs are limited to lower-income residents. This isn't. Why?
A: I'm not going to change anybody's mind if the thinking is, "This is a poor person's problem, and if only people were more financially literate, they wouldn't get into this kind of trouble." We have so many examples at Civil Justice of well-educated, high-income people who have been taken advantage of. … Even very well-educated, high-income borrowers wouldn't necessarily know how to confirm, for example: Is their loan escrowed for taxes and insurance?
Q: You've seen that happen?
A: My very first client when I came to Civil Justice. … [He] and his wife were very well-educated, they had very good incomes, and they refinanced, thinking they were getting a lower payment. And they were told the loan was going to be escrowed, and it wasn't. So the lower payment was an illusory lower payment.
Q: You've seen mistakes and other problems crop up before, during and after settlement. What can go wrong afterward?