One of the biggest problems in the real estate industry is that there is simply too much paper. It represents the single largest activity cost - no matter which aspect of the industry. Costs include the management, collation, shipment, courier, maintenance and storage of documents, as well as the costs associated with lost documents and concurrent document access - that only one person can work on one piece of paper at a time.
Only two methods for minimizing the amount of paper have been used with any frequency: imaging and work flow. Imaging is the process of scanning the document, putting it into a digital format, and granting access for viewing purposes. The downside is that you still have the paper - it is the authoritative copy. Work flow is a routing mechanism to help everyone involved in the process work more efficiently. Instead of individuals deciding what to do next with the paper, technology does it for them. It doesn't make this process any better, only faster. The best method would be the complete elimination of paper. To do that, an office must have a process- based solution, not a technology-based solution. If an office is used to dealing with paper, however, there has to be a natural way to go into an electronic environment. For it to work, there needs to be document security and reliability, federal and state legislation compliance, and consumer and industry acceptance.
Today, this vision has become a reality. New technology and recent legislation have made possible the complete elimination of paper in a real estate transaction. And, on July 24, 2000, Attorneys' Title Insurance Fund, Inc. (The Fund), eOriginal, e-cloz.com, and six other industry innovators including Mortgage.com, Enterprise Title, Inc., Broward County Records Division, New Vision Systems Corporation (NewVision), Irwin Mortgage and Fannie Mae completed the first fully electronic mortgage loan and home purchase to occur in the United States.* The loan was closed, recorded, and delivered to the secondary mortgage market in less than three hours. Supporting Legislation and Technology This milestone event for the real estate industry was completed in Florida, one of the many states to have enacted the Uniform Electronic Transactions Act (UETA), enabling electronic signatures and documents to be legally binding. This act has been in effect in Florida since July 1, 2000, prior to the recent passage of the federal E-Signatures legislation which made electronic signatures and documents legally binding nationwide. At the core of this paperless transaction is a process-based solution derived from proprietary systems and technology from eOriginal and e-cloz.com. eOriginal's patented process allows companies to create, execute and store Electronic Original- documents, and then retrieve, view, transfer ownership of, or destroy those records all electronically. The eOriginal- system is the only solution today that enables true e-commerce by producing the legally enforceable equivalent of the paper-based original. e-cloz.com's Paperless Closing Network- electronically connects the different parties in the transaction, including mortgage lenders, closing agents, county recorders and title insurance underwriters, to perform end-to-end paperless transactions. Each participant in the Paperless Closing Network can access Electronic Originals stored in a secure repository called the Trusted Custodial Utility- (TCU). Through this centrallocation, participants can electronically create, submit, retrieve, view, edit, sign, and transfer documents. An authentication service in the TCU validates the signature on the recorded document, date and time stamps the document, and digitally signs the document. In addition, document control is in place to limit and audit access to documents, track original and revised documents, and preserve the authenticity of the original electronic documents by differentiating the original document from a copy.
The home was sold by Arvida Homebuilders, who electronically executed the deed at Enterprise Title's office in Weston, FL. The buyer's mortgage was originated, underwritten, processed, and approved using online lending tools powered by Mortgage.com's Web technology. Mortgage.com then prepared the loan document package as Electronic Originals. Closing documents were prepared electronically by Enterprise Title using a version of The Fund's DoubleTime« software which includes eOriginal system components. The buyer and Arvida then executed all closing documents electronically, including the HUD-1, promissory note and mortgage. Once all of the borrower's loan documents were executed and Mortgage.com performed its online quality control of the settlement documents, the deed and mortgage were electronically transmitted to the Broward County Records Division. The documents were verified, recorded, and fees were collected electronically through software developed by NewVision for the purpose of handling electronic submissions as part of NewVision's Official Records System. After recording, the mortgage and deed documents were instantaneously available for public search through Public Search Workstations at Broward County Records Division, or through the Internet by accessing the Broward County Web site. The deed, HUD-1 Settlement Statement, affidavits, and other closing documents were transferred electronically to Mortgage.com by Enterprise Title using DoubleTime. Once closing documents were executed and recorded, The Fund's electronic title insurance policy was issued immediately and the ownership of the loan was electronically transferred by Mortgage.com to Fannie Mae, completing the first purchase of an electronically originated mortgage loan by a secondary mortgage market company. Additionally, the loan servicing rights were released electronically to Irwin Mortgage, complete with all legal and credit documents as well as a data file that Irwin used to "board" the servicing into their permanent system. The eOriginal process sealed the loan documents with the participants' electronic signatures each step of the way, ensuring the integrity and authenticity of the Electronic Originals. The mortgage finance transaction was also the first electronic documentation of its kind to be insured for legal enforceability. Through a large third-party insurer, eOriginal provides $1 million in liability insurance for each transaction processed.
Benefits of Electronic Processing
The benefits of the electronic mortgage process are compelling - not just in administrative cost savings, but in the compression of the business cycle and the reduction of the risk associated with changing interest rates. Additional benefits to the real estate industry include:
Due to recent legislation and the development of process-based technology, there is now a natural way for the real estate industry to move into an electronic environment. Paperless closings are leading the way for revolutionary change in the way real estate transactions are conducted nationwide. If you're going to remain competitive, it's time to go electronic.
* Editor's Note: On June 29, 2000 the first paperless refinance took place. See page 10 for that story.
John Sayers is Research and Development Manager at The Fund, the nation's sixth largest title insurance underwriter. He can be reached at 800-336-3863. Visit The Fund Web site at www.thefund.com , or www.doubletime.com .
Skip Straus is President of e-cloz.com and owner of Enterprise Title, Inc. He can be reached at firstname.lastname@example.org .
Visit the e-cloz Web site at www.e-cloz.com . Joe Bryant is Senior Vice President and General Manager of the real estate division for eOriginal. He can be reached at 410-659-9796. Visit the eOriginal Web site at www.eOriginal.com .