Thursday, August 9, 2018

Real Estate Closings Continue To Rocket Into the 21st Century - Part Quatre

Dear reader, either we are ahead of the curve on this topic or a lot of new things are in the news regarding electronic real estate closings.  We looked at how technology and changes in the law are affecting real estate closings here and here. Real estate closings are migrating away from buyer, seller, and lender finalizing the transaction in the same room at the same time, physically delivering wet-signature documents notarized in person to a registry of deeds where they are manually recorded, thus completing the transaction. Real estate closings are moving toward buyer, seller and lender closing from remote locations, linked electronically, notarizing, exchanging and recording documents electronically and disbursing funds electronically. We also looked how truly 'electronic' closings aren't a reality yet and for that reason, sometimes it is better to close a real estate transaction in person.

In a wide ranging study entitled "A Financial System That Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation, issued in July, 2018, the U.S. Department of  the Treasury at length explored proliferation in technological capabilities and processes at increasing levels of cost effectiveness and speed in financial transactions. It looked at these changes in the depository system, capital markets, asset management and non-bank financial service providers, and along the way, settlement of real estate transactions.

One of Treasury's biggest concerns was lack of acceptance and lack of uniform approach to remote notarization:
Despite state-level progress toward wider recognition of electronic notarization, the absence of a broad statutory acceptance across the country and uneven standards for remote and electronic notarization implementation has created confusion for market participants, slowing adoption of digital advances in mortgage technology by limiting the ability for lenders to complete a digital mortgage with an eClosing. Non-uniform state rules create a cost barrier for electronic notarization system vendors developing their platforms and creates uncertainty for investors considering purchasing digital mortgages.

The study recommends all states enact legislation permitting  remote, online notarization and calls on Congress to enact nationwide uniform remote notarization standards.

As for the remote electronic closing itself, the study correctly observes that while the digitization of the front-end, mortgage origination process has made progress, digitization of the the back-end, closing process has not:
... development of, and integration with, digital capabilities across the back-end of the process is integral to the ability for lenders to offer an end-to-end digital mortgage product. At present, this integration is challenged by disparate rules and non-uniform recognition of electronic and remote online notarizations, reticence by some county land-recording offices to accept digital property and security records, and still-developing industry capabilities to accommodate new technologies.

The study suggest progress in this area could be through digital promissory notes, which are already permitted under the Electronic Signatures in Global and National Commerce Act of 2000 (ESIGN),  and in the 1999 Uniform Electronic Transactions Act (UETA), a version of which was passed in Massachusetts.

At least one reason the truly electronic, digital real estate closing has not arrived is that completely unrelated, disparate systems, are currently utilized to finalize a real estate transaction. There is the system of transferring payment, electronically and by check, to fund the loan or purchase price and closing costs. There is the system, electronic or otherwise, whereby the parties create and authenticate the closing documents. Then there is the recording system, whereby the transaction is accorded the required level of security by complying with statutes providing notice to the world of the interest of the owner or lender. Until all of these are more seamlessly integrated, real estate closings will be different, but not necessarily more efficient or convenient.

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