Next time you take out a loan or refinance your house, do something unusual: Read all the loan papers.
You’ll drive the loan officer crazy. The officer will meet you in a large and spacious conference room with a stack of papers at least a foot high. She’ll set the first group of documents down on the table and slide it toward you. She’ll show you the signature line and say, “Sign here, here and here.”
If you start reading the papers line by line, the loan officer will first look surprised. Then impatient. Then helpless.
My wife has this down to a science. We’re together, the loan officer hands us a paper, and I start to read it. My wife quickly says, “He’s a lawyer. He reads everything.” This seems to pacify them.
What percentage of borrowers actually read the documents they sign? Nobody knows for sure. But if the reactions of the loan officers are any indication, it can’t be very high.
If you don’t read the contract but just sign it, are you bound by its terms? In most cases, yes. The problem is, many times borrowers won’t understand the language even if they read it. If they don’t understand it, are they still bound? Again, in most cases, yes.
What to do? Take a lawyer with you to review the documents. Who actually does that? Almost nobody. What does that mean? That lenders are free to put in that contract a lot of provisions that benefit them and only them.
A small example: Have you ever signed a contract that provided that any lawsuit about the contract would be filed in New York or another state? Some states limit or bar punitive damages. That means if the lender, brokerage house or other institution is really, really guilty of doing something wrong, the most you’ll get is you actual (or out of pocket) damages. You might get some emotional distress or related damages. But your ability to get other damages may be severely limited or barred altogether.
How about that? If a major corporation presents you with a contract to sign that says any lawsuit will be filed in Wyoming, or Delaware or Kansas, will your lawsuit be filed there? Very possibly, yes. If a problem develops, you might find yourself talking to lawyers 2,000 miles away. And a trial? Try to find a comfortable motel at a good price, because you may find yourself having an extended stay at a place you’ve never been before.
Fortunately, most contracts don’t end up in a lawsuit. But for conservative people who can afford it? Know what you’re signing.