Mortgage documents have long been signed between a borrower and closing attorney using pen and paper. With electronic notarization, closing attorneys would do the notarization through a portal that requires dual authentication from the borrower and closing attorney.
Caleb Cook remembers closing his first car loan with an electronic signature nearly two decades ago while working out in the West Coast.
He recalled thinking at the time, “Wow, this is really cool technology that will revolutionize everything. I figure it will only be a few more years until they start doing this with mortgages.”
Fast forward 20 years, Cook is now a vice president of mortgage lending at Marlborough-based Digital Federal Credit Union, Massachusetts is one of 20 states that has yet to pass an electronic notarization law – and this type of technology has yet to become mainstream in the mortgage industry.
Despite being off in his forecast, Cook said he believes that state lawmakers could potentially pass electronic notarization into law during this legislative session.
“There seems to be interest finally across the industry,” he said. “Everyone knows this is coming and it has been discussed on the national level. This is happening in other states, so let’s try and make this happen in Massachusetts while being cognizant of our system.”
How It Works
Mortgage documents have long been signed between a borrower and closing attorney using pen and paper to ensure the borrower’s authenticity before they can be filed with the state’s Registry of Deeds, which records all land documents.
With electronic notarization, closing attorneys would do the notarization through a portal that requires dual authentication from the borrower and closing attorney.
While 30 states have various electronic notarization laws, they come in different flavors.
Some still require the borrower to use a secure portal in person with a closing attorney, where the closing might be done using a device like an iPad, and where mortgage documents can be executed digitally. Other states have gone even farther and allow for electronic notarizations to be done completely remotely through a webcam.
Many states that allow remote closings, like Texas and Virginia, are more spread out and it can take an hour or two to drive to a notary office. There, remote electronic notary process can save homebuyers from having to take days off from work.
Cook said he thinks most East Coast states have yet to adopt e-notary laws because they are less spread out and have older land record systems. The commonwealth has one of the oldest registry systems in the country, and it is bifurcated; some records are online and some are still on paper.
At this point, Cook said stakeholders in favor of e-notary are only pushing for the legalization of in-person electronic notarization in Massachusetts.
“We literally are doing it just for the member experience. That’s been driving goal from day one,” Cook said, adding he does not see this as a way to boost loan originations. “Our name is Digital Credit Union, so that is kind of what we are trying to deliver on every single day.”
Real Estate Attorneys Oppose Bill
While many financial institutions appear to be on board with e-notes, many closing attorneys are apprehensive.
“Understanding as an industry we have to keep up with times and evolving technology, my view is not that we should disdain or turn a blind eye,” said Noel Di Carlo, a partner at the law firm Warshaw, Di Carlo & Assoc. and a board member at the state’s Real Estate Bar Association. “As with any advancements, I think it needs to be scrutinized so ultimately the consumer is protected and not signing documents that affect their legal rights or standings without having an understanding of what they are.”
Bram Berkowitz
Di Carlo believes that any type of closing must contain two components: An attorney who is meaningfully involved in the process so the borrower understands what they are signing, and proof the borrower is signing of their own free will.
Remote e-notarization raises concerns about proving a borrower isn’t acting under duress, she said, and all forms of e-notarizations raise concerns about whether people are sacrificing comprehension for convenience.
The closing process purposefully takes 45 minutes to an hour, so a borrower and attorney can sit down together and review things such as when interest rates adjust, cap rates, refinancing and whether the borrower has a homestead on their property, she said.
“These are not conversations you have when sitting at home and pressing a button on a screen,” said Di Carlo, adding that in–person e-notarizations only save borrowers 15 minutes of time.
Complexities Face Any Implementation Effort
Electronic notary laws were filed in the state legislature during last session, but never made it out of the Senate Rules Committee.
Multiple bills are pending this session. One of them, H. 3292, was introduced by Rep. Carmine Gentile, D-Lawrence, and would establish a commission on electronic notarization. H. 3293, also introduced by Gentile, would legalize in-person electronic notaries.
The commission proposed in H. 3292 is seen as a crucial first step by backers of electronic notarization, because a number of stakeholders, including banks and mortgage companies, need to cooperate to come up with workable legal standards.
“The recording of those documents, moving those documents and perfecting of the security interest also involves input from the Registry of Deeds [and Department of Insurance],” said Mary Ann Clancy, general counsel at the Cooperative Credit Union Association. “[Secretary of State Bill Galvin’s office], which oversees notaries, is also aware and working toward modernization.”
The parties that purchase mortgages on the secondary market also need to adapt their practices to be able to purchase mortgages executed with electronic notarization. Cook said Fannie Mae and Freddie Mac have updated their systems so they can purchase mortgages notarized electronically, although they have not purchased many yet.
The Federal Loan Home Bank, which buys loans and provides lines of credit to financial institutions, is not currently accepting mortgages closed with electronic notarizations, but has been working on the issue and should be able to start doing so in the next year or two, he said.
Clancy added that notarizations aren’t just used for mortgage closings. They are also used for processes like adoption, adding another level of complexity to the issue.
Despite the challenges, Cook said bigger mortgage players are starting to do more electronic notarizations, creating pressure for states to change.
In the first quarter of 2019, there were roughly 19,000 registered eNotes on the MERS eRegistry system, the system of record for identifying the holder and location of an eNote, compared to the 17,000 in all of 2018, according to MERSCORP Holdings. Members of the MERS system include Quicken Loans, Guaranteed Rate, Loan Depot and Redfin Mortgage.
“The consumer’s expectations these days with using the internet and sites like Amazon and getting things from Prime is that ‘I can buy something now and not have to wait,’” said Cook. “The expectation is there, so we figure let’s treat the closing of a mortgage just like that.”
