From shopping for a mortgage and looking for a real estate agent to touring homes and signing the real estate closing documents, the process to buy a home has long been an in-person transaction.
Despite massive competition in the industry to be first to move away from in-person requirements and release an “end-to-end digital mortgage,” there are still glaring parts of the real estate process that require people to meet face to face. These holes in the “fully online” process became blatantly obvious these last few weeks as the spread of the COVID-19 pandemic pushed the industry into unfamiliar territory.
There are only five states left in the nation that do not have a stay-in-place order in at least some parts of the state, with a total of 38 states issuing a statewide order that urges residents to stay at home.
Although this is not how anyone imagined we would get there, in just a few weeks a decade-long movement to fully digitize the home-buying process was kicked into overdrive.
That’s not to say that the industry hasn’t had its share of success when it comes to digital innovation. One of the most game-changing moments for the industry was when Quicken Loans announced the launch of Rocket Mortgage, its fully online mortgage, at the end of 2015. Rocket Mortgage pushed the digital mortgage conversation to a whole new level and forced companies to start innovating on the digital side.
Five years later, the focus is on the one area that can still bring the fully digital mortgage concept to a screeching halt: the closing process. The real estate closing, in simplest form, is where the buyer and seller, along with interested parties, come together to sign the final mortgage documents, and the buyer gets to walk away with the keys to the house.
In the current social distancing environment, two of the biggest inhibitors to closings are the varying regulations around remote online notarization (RON) and the fact that not every county allows eRecording.
The U.S. Department of Homeland Security Cybersecurity and Infrastructure Security Agency did give the industry some relief by updating its list of essential services during the coronavirus to include residential real estate. But, as the California Association of Realtors stated, “if a city or county has an order with a more restrictive standard regarding what qualifies as an essential service, or more restrictions on activities, those guidelines will still govern the activities of a licensee.”
These differing orders have not only made it difficult for people in the industry to confidently perform their job, but companies are still trying to make sure they are protecting the safety of their team and customers even if they’re considered essential.
The positive news is that the industry has quickly stepped up to push for safe, and sometimes digital, ways to close on a home.
When it comes to how the industry has responded to the coronavirus, Lisa Steele, executive vice president of the Mother Lode Holding Company, said, “There was some uncertainty at first, but the real estate industry is used to change and I think most are trying to adapt quicker than ever before.”
“You’re seeing companies not only figure out how to allow employees to work remotely, but also get creative to make sure transactions get closed with minimal human contact,” Steele said. “I’m sure it has been difficult for many, but the industry should be proud of how it has stepped up and delivered for our customers.”
In fact, the challenges to the closing process right now are mainly due to regulations and laws, not a lack of technology.
Brian Henry, eTITLE chief legal officer, said that the mortgage and lending industry does not fully understand that federal legislation approved remote electronic closings long ago. It’s the local standards regarding the acceptance of electronically notarized documents that have been an obstacle, he said.
Diane Tomb, American Land and Title Association CEO, explained the regulatory barriers impacting RON and county recorders.
“Thankfully with these shelter in place orders most states are following the guidance from the U.S. Department of Homeland Security and letting the title and settlement industry stay open as ‘essential businesses,’” Tomb said. “However, it is unclear whether county recorders are also considered essential. We certainly believe they are and are working with federal and state government officials to ensure they keep operations going even with a skeleton crew.”
The county recorder plays an important role in the closing process and is the last link in the chain to complete a mortgage.
“If a mortgage or deed can’t get recorded because the recorder is shut down, that makes it really difficult to close the deal. Likewise, if there is no ability to access property records for a title search, then our members and lenders can’t do their basic underwriting,” Tomb said.
According to the Property Records Industry Association, as of Feb. 29, 2,087 counties now allow eRecording. An eRecording is the electronic recording of documents by submitting, receiving and processing documents for recording via the Internet. Without eRecording, physical documents are sent to a county clerk or recorder’s office by express mail or courier service.
“Counties have been affected the same way as many other organizations, putting measures in place to protect staff and the public,” ICE Mortgage Services President Christopher McEntee said. “In many locations, physical access to county offices has been limited or closed, and other counties continue to work with limited staff and hours. Public access to records is also limited in many locations or only available by appointment or accessible by a small number of individuals at a time.”
ICE, Simplifile’s parent company, said that the Simplifile county eRecording network includes 2,060 counties. However, McEntee said that some counties have been affected because of COVID-19, and a few counties have closed completely or have limitations, delays, or shortened processing hours.
ALTA’s data found that less than 250 counties are completely closed. “As this crisis continues, we need to ensure recorders have the ability to stay open,” Tomb said.
Tomb emphasized that lenders and title professionals have to understand they need to start talking more about the steps and additional affidavits and documents that will be necessary to address these gap issues.
“In the title industry, the ‘gap’ is referred to as the time elapsed between signing documents and recording them,” Henry explained.
“Gap coverage ensures the priority of an instrument at the time of closing, even though it has not been recorded in the registry,” Henry said. “With a much larger volume of documents now being mailed for recording, there is a much greater risk that the priority of a mortgage might be subject to an instrument recorded in the ‘gap.’”
Tomb laid out two options that make it much easier for title companies to provide insurance for this recording gap:
- Where there is a gap between closing and recordation, lenders will need to waive their closing instruction requirements around the timing of recording.
- Additionally, most title companies ask buyers and sellers to sign affidavits confirming that they won’t take out a HELOC or do anything that will result in another lien on the property until after the recording.
“We are living through unprecedented events and things are changing rapidly. Policymakers, lenders, real estate agents and consumers need to understand that while we are taking a lot of steps to help get a deal closed, that is not always going to be possible, especially if the county recorder is closed,” she said. “If we can’t get access to records or get mortgages recorded, it is hard to close transactions. Further, the longer these closures last, the riskier it will get to close and deal with these issues.”
The other challenge that the closing process faces right now revolves around the notary. Before this crisis, only 23 states allowed RON, with a lot of those states passing regulation within the last year. But the growing impact of COVID-19 quickly spurred the government to help alleviate notary pain points in the remaining states.
On March 24, Sens. Mark Warner (D-VA) and Kevin Cramer (R-ND) introduced a bill that would allow RON nationwide, enabling many people to close on a home or conduct other legal activities without compromising their social distancing practices.
The bill, which is entitled the “Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020,” would authorize every notary in the United States to perform RON.
“The SECURE Notarization Act takes a two-prong approach to continue and expand access to remote online notary. First, it permits immediate nationwide use of RON, with minimum standards. Second, it provides certainty for the interstate recognition of RON,” Tomb said.
“Without the clarity provided by this bill, some states are taking risky measures to authorize remote notarization through FaceTime or other video chat platforms,” she said. “These orders, like in New York, don’t provide the same security and anti-fraud protections that RON platforms use. For example, they don’t offer the type of tools to even determine if the driver’s license that is being held up to the camera is a fake.”
To help protect notaries still conducting business in-person, the National Notary Association developed guidance on performing what the mortgage industry is calling a “window-separated loan signing” or “porch signing.” The options apply appropriate physical distancing protocols while ensuring the essential protections of the notarial act are upheld. For example, the guideline states, “When items are passed between the signer and Notary, one person should place the item in a neutral area and then step back and provide safe distance to allow the other person to pick it up.”
The NNA added that RON regulation isn’t the only issue impacting notaries.
“Another issue that has affected Notaries in many states is that their commissioning authority — the secretaries of state, attorneys general, and the counties in some states — have closed or severely scaled back their services during the crisis,” NNA Vice President of Government Affairs Bill Anderson said.
As a result, individuals wanting to apply to become a notary or who need to renew their notary commissions in certain states may not be able to do so or their applications may be delayed. To fix this potential shortage, the NNA believes a governor, by executive order, can choose to extend the expiring commissions of these Notaries by operation of law for 30 days or longer.
Looking at California as one example, the commissions of some 11,000 notaries will expire in the next 90 days, which could cause significant delays in the state. ALTA urged industry professionals to call their local constituents to request county recorders’ offices be considered essential and to pass the SECURE Notarization Act.
“Legislators need to know how their actions are affecting the small businesses — as well as the consumers who cannot close on real estate transactions or benefit from mortgage refinances — in their constituencies,” Tomb said.
RON and eRecording have the potential to benefit the industry now and in the future. When Congress introduced the SECURE Notarization Act, MBA CEO and President Bob Broeksmit said, “The immediate need for it is so related to the pandemic, and it’ll also help the efficiency of the closing process in perpetuity. But of course, it’s especially needed immediately.”
As the industry works to get these initiatives approved, title companies are trying as best they can to move forward with business operations, as many have long used technology where it’s allowed.
“The uncertainty of it all — how long this pandemic lasts, how it affects the economy long-term and so on — will be challenging going forward, but I’m cautiously confident right now,” Craig Haskins, chief operating officer at Knight Barry Title, said. “We have all the tools and skills necessary to thrive in this new norm, and we’re ready to use them today.”