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Title News - March/April, 2006

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May/June, 2006 - Volume 85 Number 3

The Real McCoy:
Document Authentication in the Paperless Transaction

by John L. Jones

What does the real McCoy have to do with authentication? Lots. Here’s a case in point. Back before the creation of television, the World Boxing Association, or the International Boxing Federation, even before boxing superstars such as Joe Louis, Jake LaMotta, Muhammad Ali, Sugar Ray Robinson or Rocky Marciano, boxing was a traveling event held in small towns as well as big cities. At the end of the 19th century an American boxer by the name of Norman Selby won the U.S. welterweight championship. Selby fought under the name Kid McCoy.
As the story goes, many fighters in the small town venues billed themselves as Kid McCoy in the local fights. After a while people became dubious of the billing. As I heard it, it got so bad that a skeptical drunk who met the boxer in a bar denied he was the genuine article with such force that Selby was forced to hit him. After recovering from the blow the drunk said, “That’s the real McCoy!”
There are better ways to authenticate things than by having the tar beaten out of you. But do we in the title industry keep putting ourselves at risk by avoiding the proper steps to authenticate our transactions? As title people we rely on a notary for authenticating the identity of signers and their acts by checking identification credentials and either administering oaths or taking acknowledgments. But we also take this notarial act for granted. You know what I am talking about; having a notary who wasn’t present in the closing room notarize the documents. Or notarizing the closing documents after the parties have left. Or maybe having small changes made to the document because they were omitted before printing the document. After all, things are going a mile a minute, everyone is in a hurry, and you do what you have to do to get the deal closed.
These are everyday small things that maybe we shouldn’t do, but we justify them as necessary to get the job done. The borrower isn’t going to want to come back in to re-sign a correction. The parties want to get on their way, and you can sign and seal the documents when they leave. Ninety-five percent of the time everything is fine. Actually it is probably less than that, but for all practical purposes, who ever comes back against us for notary claims?

We know we are sometimes imperfect in the performance of our notarial duties, yet we seldom hesitate to question a notarization except in the most egregious circumstance. If your suspicions are raised, it may not even be the notarization that triggered your concern but some other sequence of events in the paper trail. So why do we trust the act? Because the laws generally say we can. Because people sense the formality of the ceremony as important. And because we think the notarization makes the document “more legal.” We see the notarial certificate and signature, as well as a seal where required, then trust that the notary performed the act. We do not even bother to verify that the person who signed as a notary was a notary. When is the last time you asked a notary regulator to authenticate a notary commission on a document? Do you even know who to contact to do so?
Before going further I want to say that this is NOT a condemnation of the title industry, notaries, or the office of notaries. Not all notaries are guilty of lax practices. Some notaries are very diligent and never take shortcuts. Among those that sometimes do, it is not the norm of their behavior. Some do so because they are commanded by their employers and fear for their jobs. Others have no clue that what they do is wrong.
My point is that this is the current reality of authenticating identity. As we move into the digital age, we are apt to take our current conduct and practices with us. Will the digital age save us from ourselves? Or will it be easier to be lax? Yes. To both.

Notarial acts provide casual assurance of a signer’s identity and intent to sign and be bound by a document. Notarial acts have two other fundamental things to accomplish. The first is regulatory and requires that a notarized document be capable of authentication by the respective state notary regulator, typically the secretary of state. That authentication entails a regulator making a determination from the document that the person purporting to be a notary is both a duly commissioned notary and is likely to be the person she claims to be. The first part is relatively easy to compare against a database of notaries. The second is a more subjective comparison of a signature on the document against one kept on file. In the eNotary world, an electronic document will need to provide a mechanism that accomplishes the same things, at least to the degree accomplished in the paper world. Many methods other than signatures can do this. Affixing the notary information, such as commission number, commission expiration date, and other information required on the seal, is a start. It is also the minimum required under UETA. Something as simple as a notary journal would suffice, where the respective page of the journal could be produced to show the notary performed an act for the parties of a particular document. Even maintaining copies of notarized documents in a title agent’s or attorney’s transaction file can provide the assurance that a particular notary performed the act.
The second thing notarial acts accomplish is to provide evidentiary value for admissibility before the courts. Barring a challenge to the notarial act itself, notarized documents generally get a free pass for admissibility under Rule 902(8) of the Federal Rules of Evidence, Self-authentication. “Documents accompanied by a certificate of acknowledgment executed in the manner provided by law by a notary public or other officer authorized by law to take acknowledgments” do not require extrinsic evidence of authenticity as a condition precedent to admissibility. Even without the presumption of self-authentication, Rule 901 of the Federal Rules of Evidence allows for various methods a proponent may use to prove that the authenticity or identification of a matter is what he purports it to be. One is that an electronic document may be secured by storage in a system or by a process that meets the Rule. If your file systems are secured to comply with Gramm-Leach-Bliley, you are already addressing the security issue.

Federal E-SIGN and UETA, as well as the new Uniform Real Property Electronic Recording Act (URPERA) from NCCUSL, provide much of the framework for electronic notarization, without re-writing existing state notarial laws and regulations. While we are accustomed to a physical stamp and seal in the paper world for example, these acts remove the requirement of a physical stamp or seal so that we can notarize electronically. Instead of a stamp or seal the new legislation requires that the notary’s electronic signature, “together with all other information required to be included by other applicable law, [be] attached to or logically associated with the [notarized] signature of record.” URPERA overtly eliminates the need for a seal on electronic documents, not only by notaries, but seemingly by others such as corporate officers, government officials and professionals, e.g. surveyors, as well.
Nothing in E-SIGN prevents a state agency from setting performance standards in connection with assuring the accuracy, record integrity, and accessibility of records that are required to be retained as described in E-SIGN Section 7001(d). Performance standards, however, may not be used as an end run to require use of a particular type of software or hardware in order to comply.
Specific technology requirements are popular components in rules promulgated by government regulators, but this approach runs afoul of E-SIGN Section 704, which prohibits state and federal agencies from adopting such rules. It is with an eye to that very thing (technology neutrality) that the National Conference of Commissioners on Uniform State Laws included Section 7 of the Uniform Real Property Electronic Recording Act (URPERA). Section 7 provides that URPERA does not supersede the preemptive portion of E-SIGN nor authorize electronic deliveries of E-SIGN prohibited notices.

Solutions for electronic notarizations are coming fast and furious. Some are so good that they solve problems that don’t exist yet. Others assume there are no problems and that you may proceed without caution. But they come amid discussion and debate over the principles and technical issues surrounding the notarial act. The Property Records Industry Association (PRIA) issued a white paper on notarizations several years ago. PRIA began discussions on eNotarizations last year but moved the whole kit and caboodle to the American Bar Association’s Science and Technology Section, where the eTrust Subcommittee took up the issues of law and principles. eTrust’s Electronic Notary Work Group met weekly for six months to develop a report for the ABA. Among the participants were members from the ABA, MBA, ALTA®, PRIA, Wells Fargo Bank, two notary associations and the National Association of Secretaries of State.
The report from the group looked to the principles for notarization that need to be addressed in electronic acts. The group also weighed the technology neutrality embodied in the Uniform Electronic Transactions Act (UETA) and the Electronic Signatures In Global and National Commerce Act (E-SIGN), as well as the federal preemption found in E-SIGN. The biggest issues in arriving at a consensus for the final report to the ABA’s eTrust Subcommittee revolved around authentication. There was no argument that the notary is responsible for authenticating identity as well as intent of the signer, whether by oath or by acknowledgment. At this stage neither is anyone suggesting that personal appearance before a notary be dispensed with.
The serious debate had to do with authenticating the document itself. More precisely, it was a document security requirement for the notary, who a small minority felt has the duty to provide post-notarization tamper evidence (a way to show if the documents were tampered with after the transaction). In other words, regardless of the agreements between trading partners as provided for in both UETA and E-SIGN, the notary would be required by state law or regulation to apply a technology solution to a notarized document at the time of notarization to prove whether or not a document was altered subsequent to the notarization.
How can one argue against such a great public purpose? If we can arm America’s 4.5 million notaries with secure technology that will reflect any change to a document, shouldn’t we? Perhaps, but is the notary the best place for that added security? The most compelling argument is the fact that notaries do not provide tamper evidence today. It is easy to replace a page in a multipage document or otherwise alter a document to a degree sufficient to fool the casual reader. The additional burden on an electronic transaction fails to meet the E-SIGN directive in Section 704 that state regulatory agencies are preempted from adopting regulations unless, among other things, the methods to carry out the purpose are substantially equivalent to the requirements imposed on nonelectronic records and do not require, or accord greater legal status to, the implementation of a specific technology.
Whether or not the document is notarized, tamper evidence is already built into industry standards to be applied to an electronic document by each business partner in a transaction, protecting each partner from liability owing to changes after the document leaves its control. Is it really necessary to go to extra expense each year for a tamper evidence solution for all of your notaries? After all, who should be on the hook, each business trading partner or your notaries? Granted tamper evident digital certificates are available for as little as say $25 to $50 a year per notary, but the certificate policies those digital certificates are based on may not be interoperable with, and therefore unacceptable, to your trading partners.

What this comes down to is that we should be able to perform electronic notarizations simply and painlessly in the 46 states and the District of Columbia where UETA is enacted. If you object to requirements that will make solutions more complex and costly, then you need to be engaged with your secretary of state to let them know. As always, strength is in numbers. Work through both ALTA® and your state associations to ensure your voice is heard.
Soon, when electronic acknowledgments and oaths are completed with your electronic pen on electronic documents you can say, “That’s the Real McCoy!”

John L. Jones is president of Arion Zoe Corporation in Tampa, FL. He can be reached at or 813-254-0055.

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