The mortgage industry has long touted that consumers are driving how real estate transactions are conducted, and as a result, the industry has continued to pump out new digital processes to improve the borrower experience. However, this borrower-centric approach was put to the test earlier this year when the COVID-19 pandemic completely altered the way real estate closings are handled.
Borrower safety quickly became one of the biggest priorities for everyone in the mortgage industry, and the best way to ensure this safety was through technology.
Any lender, title company or state that was hesitant to adopt digital closings before the pandemic couldn’t ignore it anymore. But does this mean remote online notarization (RON), eNotes, eRecording — along with all the other “e’s” — will be the new normal, or did everyone just put on a temporary bandage that will go away post-pandemic?
When looking at how the real estate closing ecosystem responded to the pandemic, there were two main roadblocks that made it difficult to maintain safety requirements: the varying regulations around RON and the fact that not every county allows eRecording. Both challenges play an important role in creating various types of digital closings.
Before the pandemic, only 23 states allowed RON, with a lot of those states passing their regulations only within the last year. Now, only six states don’t have RON legislation in the works, in effect or in effect with a temporary executive order.
Many of the states that haven’t budged on RON legislation, like Colorado, which is infamously known for being difficult to get RON legislation through, passed temporary executive orders to enable remote transactions. Colorado was even one of the first states to explicitly cite that it would allow in-person real estate showings as it started to open back up.
Founder and CEO of NotaryCam Rick Triola explained in an interview that the pandemic has moved the needle on two key things when comes to RON. First, he cited the increased awareness of RON, with consumers, settlement agents and legislators all “understanding the value.”
For the second piece, Triola said, “What the pandemic has really done is escalate RON all the way to the federal level.”
One of the challenges most legal folks had with RON was there are no test cases, he said.
“The fact that we have federal legislation that says a RON is a RON just like a notary is a notary, I think that’s very valuable,” Triola said.
The technology around RON and emergence of the “e” process in the mortgage industry isn’t new though. Even Triola’s company was founded back in 2012. However, as he shared in the interview, “The way most innovation fails is the end user never really gets to understand it, especially in our mortgage and real estate world.”
The mortgage closing ecosystem is extremely broad. “We had to get so many people and so many entities to raise their hand, whether it was title companies, county recorders, insurers, GSE’s, attorneys. Everybody had to raise their hand to do a digital closing,” he said.
While the pandemic was unexpected, as Chris Cantrell, CEO of Foundation Title & Escrow Series explained, “The technology to protect the public has been around for a long time.”
Based in Franklin, Tenn., Cantrell commented on how resilient the title industry is as a whole, with many companies adapting in similar ways. Title companies were able to offer remote closings (either by way of existing statutory laws or special orders by governors to allow via Facebook live, Zoom, FaceTime, etc.), curbside closings, limiting participants in a closing, disposing of pens and making non-notarized documents available online.
The move to digital also allows customers much more time to review closing documents rather than handing it to them for the first time in a closing room, he stated. Cantrell’s company was even able to develop a secure portal, FTE – Connect, which eliminates the insecure communications previously handled by email, allowing customers to sign any document that does not need to be notarized on their own device.
But this doesn’t mean all the barriers to conducting remote closings have evaporated. Sharlene Shineldecker, regional vice president of Lakeshore, owner of Transnation Title Agency, said that their experience is that “many buyers and sellers struggle with RON requirements and that will be a big hurdle to get over in the future.”
Whether it is issues with their computer, such as the camera, adequate wifi or specific browsers, or the hardware and software, she said that consumers need to have a level of tech savviness to overcome any IT obstacles during the actual closing.
“There’s a big checklist for anyone that wants a RON closing,” she said. “Is your lender prepared to utilize RON? What about the Register of Deeds? Have you met your underwriter requirements? Is the consumer prepared with the technology needed?”
The other main roadblock to remote real estate closings is county acceptance. When the pandemic first hit, only 2,087 counties allowed eRecording, but as of May 31, 2020, the Property Records Industry Association said that 2,161 counties now allow eRecording.
Paul Clifford, president of Simplifile, said that in terms of convenience and the ability to maintain operations through eRecording, the pandemic was “eye-opening for counties and other recording jurisdictions, as well as document submitters that were previously resistant to eRecording.”
And for the jurisdictions that have been putting off adopting eRecording, he said that they’re now rushing to support their customers and their employees.
One example is Kentucky. “Kentucky was one of only two states that did not have a single county or jurisdiction that allowed eRecording, but that all changed in January with additions of Hardin County and Jefferson County,” Clifford said. “Since then, six other Kentucky counties have joined Simplifile’s eRecording network.”
But even with all this digital progress, he added that there are still many jurisdictions that have just gone silent. And the risk companies face by not adapting is growing fast. Clifford added that the ones that cannot or will not adapt to the changing environment are going to be much less efficient and unable to cope with situations like the one the world is experiencing now.
There is one solution that would make a huge difference to the pace of digital closing adoption — passage of the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020, better known as the SECURE Act.
Sens. Mark Warner (D-VA) and Kevin Cramer (R-ND) first introduced the bill back in March, and since then, there has been little update around it. The bill, if passed, would allow RON nationwide, enabling many people to close on a home or conduct other legal activities without compromising their social distancing practices.
“The SECURE Notarization Act takes a two-pronged 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,” Diane Tomb, American Land and Title Association CEO, previously said in an interview.
Triola shared a brief update around the act, stating that when the act was first thought of and written out, it was in the pandemic, and they were trying to do something.
But since then, he said, “Everybody in the industry put the brakes on and said, ‘Wait a minute. There’s no meat on the bones here. We need some guidelines around identity proofing and storage of the records.’”
While there’s not strong opposition to the act, he said none of these issues were considered early on, so it’s really just a matter of just getting solid standards around the act.
The industry isn’t waiting around for the SECURE Act to come through though. As Cantrell stated, when it comes to how the home-buying process is finalized, the pandemic did not cause the need to change, it just hastened it.
Clifford echoed similar sentiments, saying, “Electronic real estate transactions – from viewing a house through eAppraisals, eApplications, eClosing, eRecording, etc. – are all a byproduct of the natural evolution toward technology that our society as a whole has embraced over the last two decades.
“While real estate might be the last to leave the digital station, recent events have certainly accelerated the journey towards going 100% digital.”