Don’t Let Confusion About Notarial Law Disrupt the Closing Process
May 31, 2018
As more lenders move toward fully digital mortgage origination, settlement agents must position themselves as experts in how “e” the closing process can be in the jurisdictions they serve. Presently, one of the larger impediments on the road to seamlessly executing a complete e-closing stems from ambiguous notarial law language and differing interpretations of language among settlement agents, lenders, title underwriters and county recording offices. This article is not about taking a position on a particular technology. It’s about being the local expert and helping set proper expectations. By communicating with county recording offices, your underwriter and lenders about state laws and jurisdictional policies that determine electronic and remote notarization practices, settlement agents can prevent delays in the closing process, thereby facilitating an optimal customer experience.
E-notarization vs. Remote Notarization
The functions of a notary are to verify the signer’s identity, observe the signer freely signing the document(s) and maintain a record of the notarial event. In instances of e-notarizations and remote notarizations, a notary performs these functions just as they would in a traditional notarization. These types of notarization only differ in methodology.
Very similar to traditional notarization, e-notarization requires both the signer and notary to be co-located at the time of document signing. The only difference is that instead of hand-writing signatures and wet-stamping paper documents, the parties involved digitally sign and seal digital documents on electronic devices. Remote notarization, on the other hand, allows the signer to use two-way audio-visual communication (think Skype or FaceTime, with additional requirements related to the notarial act) to virtually appear before a notary from anywhere in the world.
Where It Gets Complicated
Embedded in our current legal structure is the practical assumption that a notarial act requires a notary and a signer to convene in the same physical space and wet-sign a document. This is the case because many of the notarial laws in effect today were penned in the 1960s and 1970s, before electronic and remote notarizations were technically possible. At the time that these notarial laws were enacted, there was only one way to appear before a notary, and that was by sitting down at the signing table together.
In the context of today’s technology, notarial law written in the ’60s and ’70s can read anywhere from restrictive to downright ambiguous. Phrasing such as “appear before the notary” or “appear physically before the notary" now raises the question: Can you use technology to “virtually appear” before a notary rather than physically presenting yourself to a notary?
Another notarial legal construct that is challenged by the advent of remote notarization is the convention of state commissioning authorities restricting notaries to performing notarial acts within the state in which they are commissioned. Now, however, a signer can use technology to appear before a notary located in a different state, which raises another question: Can a signer use technology to virtually appear before a notary that is in a different state?
The State of Remote and E-notarization
Six years ago, Virginia introduced legislation to modernize its notarial law and clarify the ways in which technology can be used as a notarial tool. Legislation was enacted that permits signers to use audio-visual communication technology to appear before a Virginia notary while physically being anywhere in the world.
Currently seven states—Virginia, Texas, Nevada, Indiana, Tennessee, Minnesota and Vermont—have passed legislation permitting state notaries to perform remote-notarization nationwide. Montana also passed legislation that permits notaries to perform remote-notarial acts, but restricts these acts to Montana citizens and transactions that have a nexus to the state. So far this year, remote notarization bills have been introduced to legislative sessions in 14 other states and the District of Columbia.
There are still some states that have yet to specifically address e-notarization, let alone remote notarization.
Driven by the legal and practical confusion resulting from varying approaches to modernizing notarial law, the Uniform Law Commission has begun drafting an amendment to their Uniform Notarial Act, which will provide model language for states to use to codify that audio-visual appearance before a notary is permissible and the signer can be in a different state than the notary. The amendment is on track to be considered by the full commission in July 2018.
Additionally, ALTA and the Mortgage Bankers Association convened a meeting of industry stakeholders last fall and produced model legislation that reflects the needs and interests of the real estate finance industry. This model legislation is available to state land title associations interested in providing a baseline for statewide stakeholder discussions and legislative consideration.
The Necessity of Becoming an ‘E’ Expert
With all of these scenarios swirling around and since most documents have to be notarized in order to be recorded, recorders want to know: How do I know if a remote notarization is valid if my state doesn't say anything about that? Do the interstate recognition laws apply to this new technology the way they applied to in-person, wet-ink notarizations?
Recording is a critical component in the U.S. mortgage industry. The recording of a security instrument establishes and protects the lender’s lien position by serving as constructive notice that a piece of real property will secure the money loaned to the borrower. Without recording, the lender-borrower financial relationship would be much more complicated.
So what does happen when a lender tries to record a security instrument with remotely-notarized documents in a jurisdiction with ambiguous notary law? Ultimately a recorder’s decision to accept or reject notarized documents may have little to do with whether they are opposed to or in favor of the use of remote or e-notarization. In the absence of a clear legal directive, many recorders will err on the side of caution and reject all documents that have been notarized by nontraditional methods.
Thus, a tool that was intended to facilitate a faster, more secure and transparent mortgage closing has now gummed up the entire transaction for the homebuyer, the lender, the settlement agent and the realtor as well. As the entity sitting at the nexus of the real estate transaction, settlement agents are uniquely positioned to advise their mortgage lending partners on just how “e” they can take the closing process to avoid scenarios such as the one just described. By playing the role of observer and advisor on electronic processes in the real estate transaction, such as notarization, settlement agents not only simplify the closing process for themselves, but also provide invaluable benefits to the borrower and other stakeholders in the transaction.
Mark Ladd is vice president of regulatory and industry affairs for Simplifile. He can be reached at mladd@simplifile.com.
Contact ALTA at 202-296-3671 or communications@alta.org.