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Challenges Remain to Widespread Implementation of e-Mortgages

ABSTRACT: While the very concept of an electronic mortgage is not new, the adoption of e-mortgages as the new "normal" remains a hot topic in the mortgage servicing realm. Despite the technology behind electronic document execution, delays in e-notarization laws prevent e-mortgages from fully replacing traditional home loan transactions.

The idea of an electronically executed mortgage is far from new; in fact, e-mortgages were being recorded as early as the year 2000. Yet, a number of issues with electronic loan documents have, ever since, hindered their more widespread implementation.

The Electronic Signatures in Global and National Commerce Act (“ESIGN”), enacted in 2000, states that a contract may not be denied legal effect solely on the basis that it is in electronic form. Similarly, the Uniform Electronic Transactions Act (“UETA”), adopted by 47 states, provides that a signature may not be denied enforceability merely because it is electronic.  Home loan transactions, however, necessitate another consideration: electronic notarization.

Virginia, in 2012, was the first state to enact legislation permitting remote e-notarization through the use of webcam technology.  In 2015, Montana passed a law permitted remote e-notarization in transactions where the signor is a legal Montana resident and the real property that is the subject of the transaction is located in Montana.  To date, while another 19 states permit some form of e-notarization, only Virginia and Montana allow a mortgage to be executed electronically and notarized remotely by webcam. 

Arguably, under the Full Faith and Credit Clause, since Virginia’s e-notary law does not impose a limitation with respect to the residency of the signor or the location of the real estate, a Virginia notary could witness the signature at a loan closing in another state and still have that recognized as a valid and enforceable contract.  Even so, with the high degree of caution required for all aspects of loan origination, lenders and investors may determine that the risk involved with the transaction far outweighs any convenience or cost-cutting realized from remote closings.

Remote e-notarization would bring loan document execution up to speed with the convenience of shopping for mortgages in the comfort of one’s own home, but experts have debated the pros and cons of allowing these transactions to proceed with no face-to-face interaction.   For instance, the risk of identity theft is a concern to some.  However, remote e-notaries may use systems with knowledge-based authentication, or scan the signor’s license, in order to ensure there isn’t a forgery.

Another cause for concern is the potential for claims that loan documents were signed under duress, and were therefore invalid.  Certainly, it would be difficult to prove whether or not there was duress when only a limited space is captured on webcam footage during the remote closing.  Even so, the same type of hypothetical where a gun is pointed at the signor could occur in a face-to-face notarization.  Because neither a traditional closing nor an electronic closing could prevent such scenarios from happening altogether, advocates of e-notarization argue that we should modernize our practices to conform to the technology we now have.

It may be that the most substantial inhibitor to mass implementation of e-mortgages is, simply put, fear of the unknown.