Completing a mortgage via eClose in Texas has come a long way since its hard-fought adoption in 2018.
Two years later, many consider Texas to be the gold standard for eClosings, and it has been on the forefront of remote online notarization adoption “because you can do it in every county in the state,” according to Jeffrey Bode, president of Mid America Mortgage.
Given the impact the COVID-19 pandemic has had across the industry, we wanted to break down the changes in the digital mortgage space and also detail how RON adoption is going in Texas.
How the RON sausage is made
In 2015, mortgage executives and other stakeholders made their pitch to the Texas legislature: be among the first states in the nation to make RON mortgage transactions legal. It didn’t happen.
Bode knew that in order to get RON legislation passed during the 2017 session, he would need more backing. (In Texas, the legislature only meets for 140 days on odd years, so passage in 2016 wasn’t a possibility.)
Bode enlisted the help of the Texas Mortgage Bankers Association, which put together the proposal, as well as other associations, such as the American Land Title Association, which made edits to the bill, ensuring the support of title insurers.
At the time, there were 34 legislators with title company ownership in the Texas legislature, which played a major factor in passing the legislation, Bode told HousingWire. It took negotiation as he spoke with various parties involved on the same weekend his daughter graduated, but the legislation finally passed.
Bode and his allies saw Texas House Bill 1217 signed into law on June 1, 2017. It became the third state to allow RON adoption for mortgages, behind Virginia and Montana.
Texas officially enacted RON legislation on July 1, 2018. It wasn’t until the height of the coronavirus pandemic in April that saw RON adoption clear another milestone. Texas Gov. Gregg Abbott signed emergency legislation in April 2020 to allow for greater usage.
“The State of Texas is taking any action necessary to enforce social distancing and reduce the need for in-person contact throughout the COVID-19 response,” Abbott said at the time. “These temporary suspensions provide flexibility in the notarization process for certain documents and ensure Texans are able to stay home as much as possible to protect themselves and others from this virus.”
The following allowances were made temporarily in the state of Texas in 2020:
- A notary public shall verify the identity of a person signing a document at the time the signature is taken by using two-way video and audio conference technology.
- A notary public may verify identity by personal knowledge of the signing person, or by analysis based on the signing person’s remote presentation of a government-issued identification credential, including a passport or driver’s license, that contains the signature and a photograph of the person.
- The signing person shall transmit by fax or electronic means a legible copy of the signed document to the notary public, who may notarize the transmitted copy and then transmit the notarized copy back to the signing person by fax or electronic means, at which point the notarization is valid.
Despite the expiration of these temporary orders in June, eClosings remain strong in Texas.
Safer in Texas
Though Texas wasn’t the first state to roll out RON, it was the first to gain the support of the Mortgage Bankers Association and the ATLA.
“They [MBA and ALTA] lobbied for it; they saw the benefits of RON,” NotaryCam CEO Rick Triola said. “They watched us for six, seven years and said, ‘Okay this makes a lot of sense.’”
Unlike the states before it, Texas passed laws surrounding identity proofing for the RON process, becoming the first state to do so with its requirement for knowledge-based questions to verify identity in RON transactions.
In fact, many believe Texas has the model legislation for eClosings, and are even trying to use what has been done in the state to guide any new standards created in other states or even nationally.
Of course, this also has its downsides, such as the inability to help international clients sign closing documents through RON.
“If a Texas, RON Notary has a client that’s an international client and not a U.S. citizen, they cannot perform a RON transaction,” Triola said. “KBA knowledge-based questions only applies to U.S. citizens and folks that have a footprint in the United States.”
The Wild West
“Not all aggregators in the secondary market and not all enterprise loan purchasers [e.g., FHA/VA] are ready for full electronic closings,” Texas MBA General Counsel John Fleming said back in April. “For most closings, a wet ink signature on a note is still required. However, I am hearing that the COVID-19 crisis is accelerating the transition to electronic closing. So, by September 2020, I think the industry will have advanced to where it might have not otherwise been until September 2022.”
Triola agreed that COVID-19 has advanced the pace of RON closings, and that we may see acceptance in all 50 states by this time next year.
“This time next year, I would hope that we have a 50-state solution,” he said.
But Bode isn’t so sure, and fears the temporary orders could have caused more harm than good.
For example, the temporary RON orders in Texas removed the much-praised identity checks that eliminate much of the potential fraud during the real estate closing process.
“Those temporary orders are just kind of the Wild West that you can notarize and not really have the restrictions for falsifying who you are,” Bode said. “So, we like what’s in the legislation: we think the protections are in place to reduce fraud. We’re going to stick with the Texas bond legislation that that was approved; and anything that loosens it up, I think puts the whole process in peril.”
Bode cautioned that temporary orders could even set the RON movement back across the U.S.
“I really hate the idea of these temporary RON authorities because I don’t think that’s going to benefit the movement and I don’t want my closings done that way,” he said. “All we need is one fraudulent transaction, and it’s going to push the movement back.”