The housing industry at large is on a quest to usher in a new era of the fully digital mortgage.
As the industry seeks to conquer e-mortgage’s more formidable foes, like e-note acceptance, slow but significant progress is being made in other areas like state notarial laws to allow for electronic and/or remote notarizations.
This change would greatly increase the number of documents lenders are able to execute digitally in the closing process, thus inching the industry that much closer to realizing a complete e-mortgage. As such, now is the time for lenders to brush up on the current state of notarial law to understand what this change could mean for them.
The current legal framework in much of the country assumes that a notarial act can only occur under a very narrow set of circumstances: that signatory parties will meet and sign documents across the table from a notary public. Many state laws instruct that parties must “appear before the notary,” while some even specify that parties must “physically appear before the notary” for a valid notarial act to occur.
Until recently, state legislatures hadn’t examined their notarial laws in more than 50 years, before the personal computers and the birth of the internet. These laws were clear and pragmatic at the time they were crafted by legislators because they ensured the ability of the notary to perform its three essential functions: verify the identity of document signers, confirm that participants are free from coercion and retain a record of the notarial event.
However, now the technology that can facilitate a remotely supervised document signing is commonplace and constraining notarization to a face-to-face event seems restrictive and ambiguous. With two-way audio-visual communication (a la Skype), screen sharing technology and remote identity verification tools at our fingertips, it is perfectly feasible for a notary to perform all three essential notarial functions online from a remote location.
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Right now, state lawmakers are beginning to clarify two critical legal challenges to remote notarization. The most obvious: Is virtually appearing before a notary equally acceptable as physically appearing before a notary? The second question stems from the tradition of states only extending notarial authority to notarizations conducting within the state: Can a remote notarization in which the notary and signers are in different states be performed?
Virginia was the first state to update its notarial law when it introduced legislation six years ago that clearly defines how technology can be leveraged as a notarial tool. The legislation passed gives Virginia notaries the authority to notarize a document using two-way audio-visual communication for signers anywhere they are, both nationally and internationally.
In addition, six other states – Indiana, Minnesota, Nevada, Texas and Vermont – have enacted laws that allow state commissioned notary publics to execute remote-notarizations nationwide, and Montana has also passed laws allowing state notaries to conduct remote notarizations, although these remote notarial acts can only be performed for Montana citizens with a state-related agreement.
In 2018 alone, remote notarization bills have cropped up in the legislative sessions of 14 additional states and the District of Columbia. That said, there are many states that have yet to address remote notarization, and for lenders operating in these states, the path forward is less than clear.
Some may be tempted to operate on the assumption that the absence of explicit legal language prohibiting remote notarization means these types of transactions are legal in these jurisdictions, but that can create an entire host of problems, especially in the document recording process.
Recording is essential to the mortgage industry, as it serves as a way for a lender to secure a lien position establishing that a piece of real property will secure the funds owed by the borrower. In the absence of recording, the financial relationship between the lender-borrower would be significantly more complicated.
E-recording has been a long-standing practice with recorders for decades so many county recording offices are at least familiar with electronically executed documents. In fact, the Property Records Industry Association (PRIA) estimates that e-recording covers more than 80% of the U.S. population.
However, there is still a lot of general confusion about remote notarization so some county recording offices may not accept remotely notarized documents in an effort to ensure that homebuyers and lenders can make a secure exchange. In this instance, the best course of action is to proactively open the lines of communication with local recording offices and ask them about their policy on remotely notarized documents.
Even in the face of potential resistance at the county level, there is still much to be optimistic about when it comes to digitizing document notarization, given the legislative momentum to make this practice legal throughout the country. As lenders continue the march toward a complete e-mortgage, the ability to digitize key parts of the process, like notarization, enables lenders to maintain forward progress and deliver a homebuying experience that continues to get better.