Mortgage lenders must embrace e-notarization to make digital loans
Across the country, states continue to grapple with whether — and how — to allow e-notarizations, a critical step in achieving the goal of widespread adoption of end-to-end digital real estate transactions.
Currently, e-notarizations can take one of two forms: an in-person electronic notarization (IPEN) that is conducted in person with an electronic seal or remote online notarization (RON) where audio-visual technology is utilized with an electronic seal and the parties in separate physical locations.
Multiple organizations have stepped up to help support the adoption of both e-notarization forms.
In July 2018, the U.S. Treasury Department report recommended that states pursue RON legislation. Additionally, it also recommended that Congress consider legislation to provide a minimum uniform national standard for electronic and RON notarizations. In November, the Uniform Law Commission approved a RON update to the Revised Uniform Law on Notarial Acts. Similarly, the Mortgage Bankers Association and the American Land Title Association have also teamed up to draft model legislation for remote online notarizations that states can adapt, adopt or leverage in other ways.
Clearly there is growing interest in utilizing IPEN and/or RON in an increasingly digital world. Achieving the goal of true, end-to-end digital real estate transactions — from contract through mortgage, to e-closing and beyond — depends upon this key functionality and ability to adopt easily. However, there are differing opinions about how lenient or strict states should be as they consider their legislative options, and it creates a great deal of confusion, especially for those participants in the transaction that span across these jurisdictions.
Even when considering those states with active e-notarization laws on the books — Virginia, Texas and Montana all come to mind — there is great variation in the way the issue has been approached. While one state puts very few restrictions on the location of the customer, property and/or the lender involved in a real estate transaction, another state's approach requires that parties to the transaction — and the property itself — must be based in-state to take advantage of e-notarization options. Meanwhile, a third approach gives RON equal standing with in-person notarizations. But at the same time, a number of states continue to resist the trend, even going so far as to actively prohibit notarizations that use online communication or do not recognize those performed in other states.
The trending momentum appears to be on the side of e-notarizations. In 2018, the governors of Vermont, Minnesota, Tennessee, Michigan and Indiana all signed RON legislation that will allow some form of remote e-notarizations for real estate transactions. In 2019, more than 12 states are considering similar legislation.
While there will likely continue to be state-by-state legislative variations — and it remains to be seen whether all 50 states will get on board — the industry is clearly making headway.
While it may go too far to suggest that every consumer would prefer a fully digital real estate experience, it's fair to say that buyers and sellers increasingly expect the immediacy and convenience of the digital transactions they enjoy in nearly every other aspect of their lives. The expanded availability of e-notarization would certainly be an important milestone in delivering on this expectation and the pursuit of a fully digital real estate transaction.
Obviously, despite consumer desires, e-notarization won't be a slam-dunk in every state. The U.S. is a diverse conglomerate of independent jurisdictions — not only in terms of political consensus (or lack thereof), but also in terms of the wide range of competing priorities that could delay efforts to progress on e-notarization.
In the meantime, we must balance our drive toward the end-to-end digital real estate transaction with the need to validate that technology systems and services continue to support traditional processes while simultaneously embracing the future.
To do so, technology providers and the customers that they serve must be secure, nimble and innovative (operationally and technologically) to support variations in the real estate transaction. Whether a jurisdiction allows for traditional, hybrid or fully digital processes, the technology that industry players rely on must be able to easily support all variations, while providing a seamless path to full e-mortgage.
This isn't the first time we've been called upon to bridge the gap between the past and the future, and it certainly won't be the last. One thing is clear: widespread adoption of IPEN and/or RON would be a clear win for everyone involved in the real estate transaction.