I recently read several press releases in the form of news articles announcing the first-ever-in-the-world electronic recording of an x-type document. Notwithstanding that they were both factually incorrect (they weren’t the first), and major hype disguised as news, they were interesting for what they represented - a harbinger of what we can expect in the near term: hype on electronic recordings.
Get used to it. These are just the first of the solutions that will be rushed to market. Some may ultimately end up as decent products. But we are just now catching the wave. No one yet has addressed the issues sufficiently to offer a product that satisfies the end-to-end needs of all the affected parties.
So before you rush out to spend the year’s hard-earned profits on a spiffy new deluxe electronic recording system, complete with an Internet nozzle, digital ink, gold-plated cyber-seals and credit card processor, consider this: only 0.17 percent of all U.S. recording districts have done anything with electronic recordings as of this writing. And half of those are simply in pilots.
So Where Are We?
During the past three years, 47 states passed various forms of electronic and digital signature legislation. Those acts are all over the board in what they do and how they are implemented. They generally define and authorize the use of electronic and digital signatures, but do little to specifically authorize electronic commerce, much less electronic recording. They vary in their approach from prescribing how the states’ public key infrastructures (PKI) are to work to more or less laissez-faire recognition of electronic document and signature validity.
The Washington, Wisconsin, Arkansas, and Georgia acts remotely address notary actions. The Washington act makes digital signatures self-acknowledging, if the signatures include digital certificates issued by a state-licensed certification authority. Arguably, a deed or mortgage signed that way does not need a notarial acknowledgment.
Are You Willing to Bet the Farm on One? Literally?
Many of these acts are limited in scope to specific applications with governmental entities, such as auto registrations. So even though a state has an electronic or digital signature act, it doesn’t necessarily help real estate industries.
A new model act was developed by the National Conference of Commissioners on Uniform State Laws (NCCUSL), and approved at their July 1999 meeting. This is the Uniform Electronic Transactions Act (UETA). The act is designed to provide safe harbor for those in each state wishing to engage in electronic commerce. As a model act, it provides a degree of uniformity among the states adopting it.
In general, this act provides the legal infrastructure for those wanting to engage in electronic commerce. It defines writings and electronic signatures. It validates electronic notarial acts. It also makes the use of electronic transactions voluntary, meaning that any party to a transaction may elect not to do business in cyberspace.
The UETA may be the best vehicle for authorizing electronic recordings because it is so broad in scope, appeals to many more constituencies, and is currently in vogue. By itself, however, it may not be sufficient. Each state will need to review its notary act to determine whether or not changes must be made before a notary can perform electronic acts.
A State by State Review
California passed its Electronic Transactions Act (ETA), a version of NCCUSL’s UETA, in the Fall. While the act recognizes electronic acknowledgments, it does not make the changes to the state’s notary laws relative to seals and journal entries that the state district attorneys’ association and the Secretary of State feel are necessary. Expect more legislation to specifically address the notary issue before a broader electronic recording effort takes off there.
Pennsylvania enacted its ETA in December. Massachusetts’ draft bill, entitled Massachusetts Electronic Records and Signature Act (MERSA), was modified in the Fall to replace it with the UETA. This is a draft form only and has not been introduced into the legislature.
A version of UETA was pre-filed in Florida for the 2000 legislative session. This bill is the result of a multi-industry task force that included the state clerks’ association, title companies, notaries, multiple levels of government, the Bar, and others. This bill includes specific changes to the notary laws to replace the authorization for electronic notaries that was repealed last year.
Similar legislation was introduced in Congress this year. (This was reported in the December issue of ALTA® Advocate.) Two bills - "The Millennium Digital Commerce Act" in the Senate, and "The Electronic Signatures in Global and National Commerce Act" (E-SIGN) in the House - were passed by the respective bodies in the last days of the 106th Congress. Changes made resulted in the bills differing. The details will need to be resolved when the 107th Congress convenes in January.
The federal effort is an interstate and foreign commerce version of the UETA. The federal government is attempting to assist electronic commerce across state lines. These bills preempt state laws in two important areas unless they have enacted UETA. One is that parties to an agreement are free to contract specific terms, notwithstanding state laws. The other allows them to determine the signature and security procedures irrespective of state laws. Another issue in one version is that it addresses notice requirements in electronic transactions.
Some states have passed legislation specific to electronic recording. Arizona took a page from the California pilot act. It passed an act that allows images to be submitted to the county recorder by title companies. Maricopa County is receiving images of the closing documents after they are scanned by the title company that closed the transaction.
Missouri also passed a recording act. It was bundled with a bill covering the state’s Department of Motor Vehicles. The Missouri bill permits county recorders to set up electronic systems, and provides for the acceptance of electronic signatures provided the county has a security system to authenticate the documents. It also permits counties to establish prepaid accounts for filing fees.
Texas passed an electronic recording act that did not specifically authorize the recorders to receive electronic documents. Instead, it established a task force under the state Library Commission to review the issues and make a report of its recommendations. The state Library Commission will effect regulations for electronic recording and make recommendations to the legislature for specific legislation needed to enable it. Texas legislature meets semi-annually, so Texas will not be able to make legislative changes before 2001. Texas has no digital notary legislation, but does have a digital signature act that is limited to communications with state agencies.
Other states have legislation that will, in theory, enable electronic recordings. Virginia has a specific act, but limits participants to a few government or quasi-governmental entities. The state has digital signature legislation that appears to authorize notarial acts. Virginia does not require a notary seal, so notaries’ use of electronic or digital signatures appears to be permitted provided the notary follows the other requirements of the notary law.
Arkansas, Georgia and Wisconsin also have acts that appear to support electronic recordings in that they recognize electronic or digital signatures, writings and notarial acts. Utah has not only a highly prescriptive digital signature act, but a specific digital notary act as well. Utah’s notary act goes beyond simply accepting an electronic acknowledgment as found in other acts. It prescribes a notary’s use of a digital signature in place of a physical seal. It also requires a notary to not only witness the signing, but to validate the signer’s digital signature.
Ten of the 50 states have a legal infrastructure or specific electronic recording legislation in place; that could double in 2000, meaning that 40 percent of the states will be ready to begin taking your documents for recording electronically.
So Where Are We Going?
A favorite writer once opined that predictions are very difficult, especially about the future, but I will stick my neck out.
First, look for pilots to test the concept. Ideas sound great on paper. Implementing those ideas will point out the shortcomings. Pilots will test both the mechanics of proposed systems and the benefits to the participants. The systems will improve or go away.
Standards will need to be developed quickly. I do not envision many recorders accepting five or ten different document formats transmitted over as many different protocols. Interoperability and open systems will be keys to success.
Payment systems are a must. Escrow accounts with the local recorder are inelegant at best. Electronic recording is transaction processing. This is not the only industry that does it.
Understanding "what’s in it for me" at every step is vital. Early on your trading partners and customers can opt out. Each time that happens you have lost opportunity costs - missed profits, inability to cut costs or improve efficiencies. Support your local recorder. Without that piece nothing happens. Develop strategies to incentivize the borrower/ buyer/seller. If you think they are ignorant of the closing process, wait until you try to get them to sign a computer screen!
Simpler, cheaper technology will come. These are not fundamental technologies like personal computers or network servers. They are incremental technologies you add to your existing infrastructure. As with the PC, widespread adoption of the new technologies will result in lower costs to buy and maintain.
What’s in It for You?
One electronic recording vendor claims that electronic document delivery and electronic closings can reduce the cost of the average transaction by $750 and from 45 days to 5 hours. Hype? Or hope?
John Jones has 25 years of experience in the land title and real estate-related industries. In 1993, he founded his current company, Arion Zoe Corporation, which provides strategic consulting services for county recorders and businesses that work with real estate-related transactions. He specializes in technology to re-engineer the business and workflow processes. Jones will be the instructor for the course "Technology for the Title Manager" at LTI’s upcoming Management Development Program. He can be reached at firstname.lastname@example.org .