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Paperless Closings - A Technical Perspective

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September/October 2000 - Volume 79, Number 5

by Darren G. Ross

On June 29, 2000, the nation's first paperless, online refinance occurred in Orem, Utah. The residential mortgage refinance was facilitated by new digital signature technology and Utah state UETA (Uniform Electronic Transactions Act) legislation pertaining to the use and enforceability of digital signatures and electronic documents. One day later, President Clinton signed into effect (electronically signed with a smart card, at that of course accompanied by a traditional hand-written ink signature) the Electronic Signatures in Global and National Commerce Act, P.L. 106-299. The Act provides that no contract, signature, or record shall be denied legal effect solely because it is in electronic form. U.S. individuals and businesses conduct approximately $600 billion worth of government transactions annually, with less than one percent of that now occurring online. In response, Congress has mandated that by 2003, all federal government forms will be available in electronic formats that can be digitally signed and electronically filed.

My, how the times are changing - and at dot-com speed. State-specific versions of UETA had been adopted in 18 states as of June 2000 and additionally 46 states had some form of active digital signature legislation. Emerging new technologies will enable real estate transaction participants to re-engineer existing business processes and create a new paradigm for transactions of the future. For the first time, it will be possible to: produce an electronic closing package from origination through closing, provide them to all parties 24/7 via an Internet-based virtual transaction folder with security privileges, and electronically record and deliver them to the county recorder and/or secondary market in a matter of hours instead of weeks.

Examining the Process

The technologies involved and aspects of implementation are still somewhat immature and in time will be much more tightly integrated providing even further realizations of all of the true benefits involved and ease of use and understanding between all the parties (and their systems) involved in a transaction. Firstly, as mentioned above, the conducted transaction was a residential mortgage refinance secured by a 20-year conventional, fixed loan. The borrowers (husband and wife) filled out an online application with the specific loan parameters desired through's Web site and Virtual Loan Officer. Additionally, an appraisal and flood determination were ordered to accompany the loan application file for the loan underwriter's review. The loan application file documents, including the electronically delivered appraisal and flood reports, were uploaded to iLumin Corporation's Online Signing Room which was created specifically for the transaction and its participants. The original format of the electronic documents as produced varied from image file formats (PCX, TIFF, BMP, etc.) to MS Word to Adobe PDF. At the time the documents were received by iLumin, the documents were converted into an XML format which provides the mechanism for process automation and the conversion of "dumb" documents into tagged-content, "intelligent" documents. By converting the documents to XML, it enabled the documents to be used for other purposes, such as populating application system databases or eliminate typing of redundant data into new documents. Additionally, it provides an additional security level whereby specific sections of documents (such as signatory lines, boilerplate text, etc.) could be locked or unlocked depending upon the respective parties security privileges to the document.

The Signing Room

The iLumin Online Signing Room is an Internet-based, central repository where all transaction documents for signing are stored as the transaction progresses. Thus, it is available to all authorized parties 24 hours a day, 7 days a week. The loan underwriter, Allied Mortgage, reviewed the application file and submitted its underwriting conditions to the signing room. LowRatesUSA (the originator") viewed and accepted the conditions, fulfilled conditions, and posted the conditions back to the signing room. Once the loan underwriter and originator signed off on conditions, submitted closing document requests and posted final approval, the underwriter authorized closing and posted the lender instructions to the signing room. Pro-Title and Escrow, the closing agent, prepared closing documents and posted wire instructions to the signing room. prepared and posted the HUD-1 statement and the originator signed the final 1003. At this point, the transaction was ready for closing. At the scheduled closing, the borrower executed (or "signed") documents with the closing officer and a notary public in the closing room (the physical closing room today). The closing package was arranged in a logical sequence and was merely a process of stepping (or clicking) through each document in the closing package and applying the borrower's and/or notary's digital signatures to the documents. Digital certificates - the electronic equivalent to a tamper-proof ID card that proves you are who you say you are - were obtained through three Utah state-approved digital certificate authorities, Digital Signatures Trust, Arcanvs, and UserTrust, for each of the respective parties in the transaction who needed to create, edit, and/or execute documents. Digital signatures are based on PKI encryption techniques that verify the identity of the signor in an electronic transaction and prevent documents from being altered after the deal is completed. A document s signed with one's private key by attaching it to the document or file. The "public" key, which is sent along with the certificate, allows another computer to check your digital certificate to ensure that the signature is authentic. After execution of the closing package and subsequent underwriter review, the deed of trust and any additional closing instruments were ready for recording with the county government offices in Orem, Utah. Following the mandatory 72-hour right-of-recession period, the documents were electronically recorded with the county recorder's office and final funding/wires executed. As mentioned previously, the levels of integration and embedded implementation of the various party's order origination and management systems with iLumin's technology are still greatly varied, but even without tight integration, this entire transaction was performed in 8-12 actual working hours. Through more streamlined integration and business partner relationships, this transaction could be reduced to a mere few hours from start to close. Driving the adoption of this technology is primarily consumer acceptance and fullyenabling legislation and guidelines within each state and/or county, but in the not too distant future, the virtual closing experience will become a reality.

Darren G. Ross is Director of Electronic Commerce at Stewart Information Services Corp. in Houston, TX. He can be reached at  or 1-800-729-1900 ext. 8482.

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