E-recording, Going Paperless Can Help Maximize Efficiency
|March 7, 2013|
For more than a decade, title professionals have heard about the benefits of going paperless. Adoption of a paperless process has been slow for several reasons. Lack of education programs, fear of technology, resistance to change and conflicting state laws have all slowed adoption. There’s also been the “chicken or the egg” mentality where the mortgage industry says it will convert as soon as county recorders are ready, while county recorders are waiting for more electronic transactions.
“We all have to take the next step,” said Vicki DiPasquale, national sales manager for Simplifile. “The great thing about the title industry is, even though the lenders are figuring out what that next step looks like for them in regard to electronic mortgages and closings, it can start with paperless closings today. Title companies should be thinking about ways to take as much paper out of the process now, so when lenders begin the push to do more e-closings, they’ll be ready.”
Title professionals can improve workflow, save money, reduce costs and improve service by embracing paperless processing through simple technology. Efficiencies include preparedness for e-mortgages, reduced supply costs, increased employee efficiency, elimination of lost files, real-time auditing and reduction of fraud and risk.
Foundation for Paperless Transactions
More than a trend in land record document submission, e-recording is a government priority. While the GSEs have been looking at electronic closings since 2000, the foundation for paperless transactions comes from several pieces of federal and state legislation. Federal (E-SIGN) and state (UETA and URPERA) legislation has established the legal basis for secure electronic recording and hundreds of counties are e-recording today.
The Electronic Signatures in Global and National Commerce Act (E-SIGN) was enacted June 30, 2000, and provides that electronic signatures and records are just as good as their paper equivalents. It states that a contract or signature “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.”
The Uniform Electronic Transactions Act, which was passed in 1999, supports the validity of electronic documents and standardizes the differing state laws over such areas as electronic signatures. The legislation has been passed by 47 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. New York has adopted its own version.
Additionally, the Uniform Real Property Electronic Recording Act has been adopted in more than 20 states in an effort to remove any doubt about the authority of recorders to receive and record documents and information in electronic form.
To facilitate paperless transactions, the National Conference of Commissioners on Uniform State Laws (NCCUSL) revised its Uniform Law on Notarial Acts in 2010. This was done to modernize the law governing notaries public and clarify their responsibilities and duties. It also served to provide a stable infrastructure for the performance of notarial acts with respect to electronic records.
“Title, underwriting, escrow, recorders, servicing, secondary market—we are all in this together,” DiPasquale said.
Since the financial crisis and the need for better data, lenders started pushing harder for a consistent electronic process. “They know their business models must change,” DiPasquale said. Over the past two years, the Federal Housing Finance Agency (FHFA) has initiated several long-term improvements to the housing finance system that address shortcomings in the current system. One of those is the Uniform Mortgage Data Program, which is aimed at standardizing and enhancing data quality, which benefits the entire mortgage industry
The FHFA said common data definitions, electronic data capture and standardized data protocols will improve efficiency, lower costs and enhance risk monitoring. Standardizing data is a key building block of housing finance reform. In September 2011, appraisers were required to comply with a Uniform Appraisal Dataset (UAD), and as of July 23, 2012, loan delivery data must be provided in industry-standard Uniform Loan Delivery Dataset format. Currently, HUD-1 data points are not necessary, but will be required in a subsequent implementation phase, giving lenders additional time to plan for collecting the data and updating their systems as needed. For title companies to remain competitive, they will need to be able to integrate with the lenders technology to provide HUD-1 data in the required format once it’s required.
In February 2012, the Federal Housing Finance Agency (FHFA) sent to Congress a strategic plan for the next phase of the conservatorships of Fannie Mae and Freddie Mac (GSEs). The plan includes a strategic goal of building a new infrastructure that promotes electronic documents. Two other initiatives could open the door to further adoption. The IRS plans to allow e-signatures on a form that gives lenders permission to review borrowers’ tax returns for income verification. The FHA is considering an electronic process for mortgages that incorporates e-signatures and matches policies in place at government-sponsored enterprises Fannie Mae and Freddie Mac.
Continued Push for Adoption
Tim Conley, senior vice president of sales and marketing for SoftPro, said that eventually every piece of data from the appraisal to every line on the HUD-1 will be in a digital format so that data can be passed from one system to another and warehoused.
“Thirty years ago, the processes in this industry were very manual,” Conley said. “If you have any task in your organization that is a manual process, technology companies are looking to digitize and automate that back-end task. What Fannie and Freddie are doing in the secondary market with requiring data elements from the lenders will greatly impact the title space.”
While DOS applications and Word Perfect were efficient for handing a typist a stack of paper and keying in a HUD-1, the programs aren’t friendly to a multi-tasking environment. Software providers are looking to enhance the process and make everything much more streamlined.
“I see title companies that have built a catastrophic paper environment, and the longer they wait, the harder it will be to move to a paperless process,” Conley said. “Those who have embraced the technology, are enjoying a competitive advantage, both in terms of streamlined operations and enhanced customer services,” Conley said.
Mark Monacelli, public records and property valuation director for St. Louis County, Minn., said the paperless environment has been a key driver for the evolution of the electronic document formats from imaging to electronic records. He believes there will be a continuous transition to paperless mortgages (e-closings) over the next five to 10 years.
“We’ve all seen the news about foreclosures and fraud, and the government wanting access to information,” said Monacelli, who is past PRIA president. “It’s changing now and will change more. Going paperless now prepares title professionals for e-closing transactions later. Paperless closing files require a change in how you think about closing office workflow.”
Doing Business with Digital Documents
In 1995, Utah passed the Digital Signature Act, becoming the first state to adopt digital signature legislation. Mike Kirby, president of GreenFolders, helped the state perform a level-three digital e-recording in 1998, but he realized broad industry acceptance was a ways off.
That didn’t thwart his desire to take paper out of the process. When Kirby operated a title company, he had nine title searchers and examiners. Admittedly, his company wasn’t efficient.
“If you have multiple office locations, you can’t collaborate effectively and you are stuck where the paper is located,” Kirby said. “We started allowing our employees to work remotely and we became more efficient. We started paying them on a transaction basis instead of an hourly rate.”
Kirby said an office that relies on paper will have manual processes, which requires organizational office equipment such as file folders and cabinets. This creates an environment where duplication is required and adds additional steps to the process.
“A workflow without paper can automate processes, replaces office equipment with computers and electronic organizational tools, and often reduce unnecessary steps in the process,” Kirby said.
The expense alone for paper in Kirby’s organization was $13,000 a month. By removing things such as file folders, labels, printers, copiers and toner, and storage facilities the savings is even greater.
“You take for granted how much these things cost,” Kirby said. “When my title company went paperless, I went from 18 copiers to three, from 40 laser printers to three and eight fax machines to three. How many people lease a copy machine? Look at that lease bill for a year. It’s no wonder why companies such as Xerox and Rico aren’t pushing a paperless environment.”
Most Adobe products have tools built into them giving users the ability to write, make annotations and keep track who has edited the document. This gives title companies the ability to allow multiple employees to work on the same document.
“We all have situations where we have six commitments in the field,” Kirby said. “In the electronic environment, you can all work off the same commitment. Now all of a sudden, you can see what everyone’s done and now you only have one copy.”
As an example of the benefits of going paperless, Landtech Data Corp. recently updated its free eSign application for the iPhone and iPad, which allows signatures and text to be placed anywhere within PDF documents.
Documents can be transferred to Landtech eSign and back to a user’s desktop via the iTunes App. With the built-in emailer, users have the ability to email signed documents from an iPad or iPhone, eliminating the paper process, said Benjamin Bell, vice president of LandTech.
Bell explained a practical use he experienced recently.
“I was submitting a corporate resolution for a loan and the bank needed two officers as signatories,” he said. “I was at the bank by myself. I signed the resolution and then took my iPhone and snapped a picture. I emailed it to a person at the office and they quickly signed the resolution on their iPad and returned it via email to the bank’s officer.”
Kirby’s advice to title companies is that if a document starts paperless, leave it paperless. “Don’t print it out and have to scan it back in,” he said.
There seems to be a false perception where mangers don’t think employees can handle an electronic process. Kirby said people will adapt. Companies need to require them to go paperless. Another misconception is that shifting away from paper will be difficult. Kirby points out that Windows is paperless, “and it’s no harder than that.”
Aside from savings and efficiency, a paperless environment gave Kirby the ability to know what was happening in all of his offices through a centralized process. It also provided better transparency for audit controls that allow underwriters and state insurance department regulators to perform audits remotely.
“Going paperless gives you a better ability to interface or integrate with third-party services or providers,” Kirby said. “If you can integrate with lenders and vendors right out of your application, that’s amazing. That’s ones one of the exciting things I see. There will come a time when you do it or you won’t be on their list.”
E-recording: The Last Step in the Process
According to the Property Records Industry Association, it took from the late 1990s until August 2006 to reach the 200 e-recording counties mark. That number has more than tripled in the ensuing five years as the number of counties accepting electronically recorded documents increased 40 percent from April 2010 to September 2011.
In May 2012, Arizona became the second multi-jurisdictional state with 100 percent of its counties e-recording. Pima County joined Arizona’s 14 other counties when it began electronically recording documents. Colorado was the first multi-jurisdictional state to earn the 100 percent designation, while Hawaii also claims 100 percent with its state-based recording system.
The number of counties that are e-recording across the nation recently passed 800. In December, Hennepin County, Minn., joined the e-recording ranks. Linda Larson, division manager for Old Republic National Title Insurance, is excited about the new way to do business with the county.
“One of the greatest internal challenges for title agents and underwriters today is the timely recording of documents,” Larson said. “In our efforts to reduce fraud and minimize claims, e-recording may be the single greatest tool that has become available to our industry in recent years.”
Previously in her career, DiPasquale worked for an underwriter. Part of her job was to work with agents that went out of business. A concern was what to do with all the paper files.
“We went to a storage unit for an agent and all the files were in the Dumpster,” she said. “Social Security numbers and personal data were on the loan applications. In a paperless environment, they would have just handed us a disk. There are a lot of scary things that can happen with paper.”
Additionally, Craig Haskins, executive vice president of Knight Barry Title Group, believes e-recording minimizes risk because it reduces the gap period from the time records are searched to when the sale is closed. Original documents can be returned to the parties moments after the closing and originals can easily be recovered since they remain in the agent’s possession. If an electronic file is rejected by a register of deeds office, it can be submitted moments later instead of weeks or days later.
“There’s a reduction in telephone calls, courier fees, duplication costs and post-closing errors, since all participants have access to the electronic originals,” Haskins said. “An audit trail of every version of each document can be accessed in one central location.”
Software to e-record runs on most standard computers and scanners today, and most title agents probably already have the technology they need in house.
“E-recording certainly expedites the recording process,” Haskins added. “Recorded documents are available within minutes after being submitted in most cases. If you are doing business across the country, the time saved getting the documents to the courthouse and back can be worth several days. Depending on the specifics of an implementation, e-recording has the ability to reduce errors by reducing repetitive data entry.”