Barely a dozen of the nation’s 3,200 counties currently record real estate documents electronically, but that doesn’t deter Maxine Olson-Hill and Mark Monacelli from urging colleagues to join the uphill battle to make the practice widespread.
"Challenges don’t faze us. We’re used to getting out and shoveling the driveway," said Olson-Hill, Burleigh County, N.D., recorder for 15 years.
Monacelli, who has held the same post in St. Louis County, MN., for 15 years, agrees. "We can meet these challenges if we work on solutions together rather than apart," he said.
Developing standards and technology solutions for electronic recording are priorities for the Property Records Industry Joint Task Force, which brings together the public and private sectors to find solutions to problems the land records industry faces.
Olson-Hill chairs the volunteer task force, while Monacelli represents the task force in an industry work group promoting standards for electronic recording. Both are active in the National Association of County Recorders, Election Officials and Clerks, a task force sponsor.
Recording real estate transactions has been an American practice since colonial times. The original settlers of Plymouth and Massachusetts Bay Colonies created the first land records systems in the early 17th century, and Massachusetts Bay Colony enacted the first recording statute in 1640.
Land records systems originally were kept by hand, then by typewriter. By the 1970s and ‘80s, computerized records systems became widely available. But it wasn’t until 2000 that what is believed to be the country’s first paperless real estate transaction was completed in Broward County, FL.
The entire recording process took less than five minutes from the time the documents left the closing office until they were electronically returned after recording, according to Sue Baldwin, director of the Broward County Records Division. "The shortened cycle time between closing and recording virtually eliminates the possibility of fraud," Baldwin said. "There is less chance of documents being altered or lost."
Saving Time and Money
Saving time is one of the most widely recognized benefits of electronic recording, which entails the recording of documents in a digital format instead of the traditional paper format. With three back-to-back refinancing booms in the past decade, county recorders have been inundated with real estate transactions, particularly in growing urban areas.
It’s not just the volume of transactions that has skyrocketed. The number of documents per transaction presented for recording has grown as transactions have become more complex.
"Electronic recording speeds up the whole process," Olson-Hill said, reducing to just minutes a procedure that can take days or even weeks in counties with growing backlogs. "It makes land records more readily available and more up-to-date."
Electronic recording offers potential savings on real estate transaction costs, such as postage and courier fees and labor for document handling and data entry. Those savings can benefit other parties involved in the transaction and, ultimately, home buyers.
Electronic recording also helps reduce errors. In a typical real estate transaction, data is entered into a computer seven times between loan origination and closing, Monacelli said, and each time the data is re-entered the potential for mistakes increases.
Standard recording practices are a key element of an electronic real estate system. "With everyone involved in the transaction using the same standards, the data can be entered once, and everyone can use the same data sets," Monacelli said. This is particularly useful in the growing number of cases in which loan documents presented for recording were originated in another state or county.
Despite the benefits of counties adopting electronic recording, several obstacles block the way. Funding for new technology is the biggest roadblock, particularly in rural counties with limited tax bases.
"Funding is our toughest challenge," said Monacelli. "Forty-four states are running deficits right now, and it’s trickling down to county governments. Counties have a number of priorities to meet with limited dollars."
Coupled with limited funding is lack of awareness among county commissioners and other decision-makers of the need for electronic recording systems. "It’s a huge education process," Monacelli said. "We have to explain the importance of the industry itself and the significant impact it has on the economy before we can talk about the benefits of electronic recording."
Part of the education process involves overcoming resistance to changing systems and procedures that have been in place for years. "Change is difficult for some, although there are many progressive people in county government," Olson-Hill said.
Lobbying for change in state laws to allow electronic recording and to make recording requirements uniform is another challenge for county recorders, who in some states are teaming with private industry to draw legislators’ attention to their issue.
So is establishing guidelines to prevent misuse of sensitive or proprietary information contained in real estate records. Many property owners, for example, would not want their Social Security number or other personal information to be publicly available online.
"With the advent of the Internet, consumers love to have access to all kinds of information, but we have to be cautious," said Olson-Hill. "We can’t just leap forward and make everything available to everyone."
Creating a New Business Model
For recording offices with exploding workloads, just finding time to plan for technological improvements is a challenge. "The refinancing boom has been overwhelming for all aspects of the industry—banks, title companies, county recorders," said Olson-Hill. "Many county offices barely have time to do the work, much less plan for new systems."
Add to that the fact that moving to a digital format is unprecedented for an industry born amid ledger books and papers. "There’s no business model for this. It’s all new territory," Monacelli said. "It’s a huge change process with a large learning curve."
About a dozen counties are in some stage of establishing electronic recording systems, although Monacelli believes that number will jump over the next two years. Most are large urban jurisdictions, what Monacelli calls the "haves." Those are counties with growing tax bases that can absorb the cost of switching to electronic recording, such as acquiring software and training staff.
They also are the counties with the greatest need to go electronic. "They have had a huge influx of documents in recent years, and the workload keeps growing," Monacelli said. "They must make changes and adopt new technologies just to keep up."
Among the jurisdictions with some form of electronic land records are Broward County, FL.; Fairfax County, VA.; Orange County, CA.; Maricopa County, AZ.; Monroe County, NY; Thurston County, UT. Typically, counties are using electronic recording for lien releases, mortgage satisfactions, and assignments.
Most counties, though, are have-nots. With shrinking tax bases, they have few resources to pay for technological change. Counties in Olson-Hill’s and Monacelli’s home states fall into that category.
"In North Dakota the vast majority of counties are small, and recording is not yet automated. They’re still using handwritten ledgers," said Olson-Hill. "While the need for technology improvements is recognized, individual counties can’t afford it."
For states like North Dakota, a regional or statewide system that counties can tap into may be the answer, Olson-Hill said. She is part of a North Dakota task force studying electronic recording options.
An electronic real estate recording task force in Minnesota is looking at establishing statewide recording standards and providing economic incentives to counties that opt in. "My dream is that someday if you want to record a document in Minnesota, you can go to a portal and do it in a matter of minutes," Monacelli said.
Moving to Nationwide Standards
At the national level the Property Records Joint Industry Task Force provides a forum for public and private industry representatives to work together on such issues as establishing recording standards and expanding the use of electronic recording. Conceived as a three-year task force, the group is planning to become an independent, nonprofit organization later this year.
Richard McCarthy, director of research for ALTA®, represents the title insurance industry on the task force, as do ALTA® members.
Task force committees focus on promoting consistent standards among recording offices, studying industry-related technology topics, drafting model legislation on property records, and educating government and industry officials on the property records process.
The task force also sponsors the XML Electronic Recording Work Group, which promotes nationwide standards for using Extensible Markup Language, or XML, for electronic recording of property records data.
Through the XML Work Group, the task force has formed strategic alliances with Legal XML, an organization founded to develop technical standards for legal documents, and the Mortgage Industries Standards Maintenance Organization (MISMO), a group launched by the Mortgage Bankers Association of America to coordinate electronic standardization of real estate transactions for the mortgage industry. ALTA® staff is also active in MISMO.
XML is a technology that allows delivery and reading of electronic property records over the Internet. It separates data from how that data will be presented, making it easier to share information among business partners in a real estate transaction.
Working together, organizations in the mortgage finance and real estate sectors hope to establish XML data standards the entire industry can use. The groups are cooperating to ensure that industry XML data standards are interchangeable and will help the industry achieve the goal for completely paperless transactions.
So far the XML Work Group has developed what Monacelli calls the "0.95 version of our standards. They’re not quite 1.0 yet. We’re in the public comment period now. But we’ve done an incredible amount of work in just six months. It has been a team effort between county recorders and private industry."
Public-private teamwork to establish industry standards is essential to making electronic recording a success, Monacelli maintains. He uses a train-track analogy when he talks about groups working to bring standardization to the real estate process.
"MISMO is the track that starts on the East Coast and goes to New Mexico, while we in the task force start on the West Coast and meet them there," he said. "From loan origination to closing to recording, we all have to be on the same track. That’s the only way it will work."
Even with national organization leading the way, Monacelli and Olson-Hill acknowledge that setting nationwide standards for real estate transactions and encouraging property records offices to adopt electronic recording will take time.
"We know we’re on the right track, but it’s hard to process so much change quickly," said Monacelli. "Real estate has become very complex. Things have changed dramatically in all sorts of areas, and we’re all trying to figure out these complicated transactions."
Dealing with one issue invariably leads to another, he added. "It’s like a water balloon. When you squeeze it on one side, it pops out the other."
Nonetheless, they believe the future of the property records industry looks bright. "These are exciting times for our industry," Olson-Hill said. "We’re working in an area we know is complex, and we’re trying to put all the pieces together. But I see a lot of promise for the future. It’s amazing how when people work together, good ideas feed off each other. Collectively, we can accomplish many things."
They encourage more title insurers to become involved in planning changes in the land records industry that will have a long-term effect on the title business.
"Many title companies have been good to the task force with financial and in-kind contributions, and we appreciate that," said Monacelli. "But we’d like to see more people involved in setting standards that will affect the title industry in the future. This is an opportunity for all of us to be pioneers."
While they recognize that it may be difficult for many title insurance professionals to participate in a national organization, they encourage insurers to reach out on a local level. "Stay connected with your local records office," said Olson-Hill. "There’s much to gain from having a relationship with the people there. We’re not just busy little librarians with out heads down shuffling papers."
Many states are creating electronic recording task forces, offering title insurance professionals opportunities to get involved at the state level.
"It’s important that we all take time to sit at the table and take part in the dialog," said Olson-Hill. "We need each other, and we can accomplish so much more if we all work together. This can be a win-win situation for both the public and private sectors."
Monacelli agrees. "What I tell people when I travel around the country is ‘Get on the train.’ We all have similar interests, similar problems. We can make positive changes by working together."
Mark Monacelli can be reached at email@example.com or 218-726-2677. Maxine Olson-Hill can be reached at firstname.lastname@example.org or 701-222-6750.
Ellen Schweppe is president of Ellen Schweppe Company, LLC, a public relations firm serving the financial services and other industries. She can be reached at email@example.com or 703-435-5621.