Wednesday, December 6, 2017

Has The Time Come for eClosings

Fannie Mae thinks so. An e-mortgage occurs when the mortgage loan documentation (specifically the promissory note, or e-note and  mortgage, or e-mortgage) is created, executed, transferred and stored electronically. This is different from a wet-signed paper mortgage which is scanned and  recorded electronically.

According to Fannie Mae: We think there are three main benefits of e-mortgages. First, e-mortgages save time and money by automating manual processes and reducing cycle time from origination through delivery and funding. They eliminate paper, shipping and storage fees. Second, e-mortgages speed up funding through e-note delivery, maximizing capital. Finally, e-mortgages can minimize risk by reducing operational errors, eliminating missing signatures, documents and fees, and improving data quality and validation.

This is an intriguing concept but I am not sure how much it would improve on exchange of notarized, wet-signed documents that are scanned and transmitted electronically.

An indispensable element of e-closings is heavy-duty securitized software and hardware necessary to produce secure e-documents. Unless this software and hardware becomes widely available, the parties will have to go to a central location, likely the lender's office, with a notary and closing personnel present, to sign documents.

Currently, in Massachusetts attorneys go wherever the parties are to obtain and notarize signatures, then e-record the scanned documents. Or the parties, wherever they may be, sign before local notaries and transmit the scanned documents to a central location such as a title company. The 'closing', including last-minute changes to documents, funding, and recording, occurs by email with the parties in their offices wherever they may be. In the last 'closing' I did this way the buyer was in Pennsylvania, his attorney was in Chicago, the title company was in New York, I was in Boston, and the seller was on vacation in Florida.

Going back to a system where everyone has to be in one place at one time is a step backwards.

Recording is also an issue. A closing is not truly concluded until the documents are recorded. Unfortunately, electronic recording (transmitting signed notarized scanned documents to the registry of deeds) is neither instantaneous nor even, in some cases, achievable in the same day as the 'closing'. There would have to be substantial improvements in all aspects of transmission of documents for this issue to be resolved, or changes in the law relating to recording.

E-closings are an interesting concept but there would have to be substantial advances in technology before they could become common.

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