LAS VEGAS–James Newell, associate general counsel for Freddie Mac, believes the use of electronic signatures in real estate settlement services is past the point of pipe dreams. Four years after a federal law allowing the use of e-signatures in legally binding documents was passed, a panel of experts last week discussed progress that’s been made in that time.
The combination of “boatloads” of technology and the legal support that’s now in place will help e-mortgages thrive, Newell said during the Real Estate Services Providers Council’s fall seminar.
Since the federal ESIGN legislation (Electronic Signatures in Global and National Commerce act) took effect in 2000, the industry has been working to set potential standards, specifications and guidelines for fully electronic mortgage processing, he said. The e-signature law was one of the few pieces of legislation that was passed before industry usage and availability of technology, which explains some of the delay between the law’s passage and widespread use of e-signatures, Newell said.
E-signatures are just one aspect of the electronic mortgage world. The industry has been working to fit together various pieces of the puzzle, including data transactions (speaking a common language); messaging formats (addressing, receiving documents); e-documents (viewing electronic documents); packaging/bundling (working with multiple e-documents); e-signatures and potential security concerns surrounding them; e-recording (having the electronic documents recorded at the county recorder’s office) and e-note registry, Newell said.
“All those need to work together on a standard basis,” he said.
Another big question that needs to be explored and addressed is how and where to store all the e-documents that will be created and used in electronic mortgages.
While security of electronic documents and signatures is a concern, Eric Gorrell with DocuSign attempted to alleviate some of those worries as he described his company’s technology, which allows businesses to send documents electronically to clients to sign. If the document can be printed, Gorrell said, it can be sent via DocuSign.
All that’s needed for the technology to work is a Web browser and e-mail. The sender first selects which documents to send and then inputs a few required information fields such as the recipient’s address. The document is sent via a link in an e-mail message to the recipient, who can then open it and “sign” it electronically.
The sender can select different levels of identity verification, including passwords and requiring recipients to answer questions about themselves that are generated from a Fair Isaac database of public record information. Such questions, generated instantly in a multiple-choice format, could inquire about what states the recipient has lived in, among other things.
Each transaction generates a tracking number, similar to the way FedEx tracks its packages, Gorrell said. Senders can check on the sent documents through each stage. In “signing” the documents, recipients can choose from various script fonts and can do things such as add middle initials so that the e-signature matches the way they sign their names on paper. The e-signature then generates a number unique to that person, which is the true signature.
But as e-signature technology moves forward, there are old rules to consider, such as the Real Estate Settlement Procedures Act. RESPA is a set of regulations that proscribe certain disclosures for home mortgages and prohibit certain kickbacks in real estate transactions, among other requirements. The U.S. Department of Housing and Urban Development has shown little inclination to issue guidance in this area, said Steven Schwendemann, attorney with Foley & Mansfield, but companies need to tread carefully in this area.
Potential RESPA concerns could arise if an e-signature Web site operator encourages the use of a particular settlement services provider or if that operator is compensated based on the number of transactions completed through a provider, Schwendemann said.
For 200 years, “wet,” or traditional signatures, “were something everyone looked to,” he said. But state and federal laws on the topic have changed the need for traditional signatures, and the perception of their necessity is slowly changing as well, Schwendemann said. E-signatures are generally considered to be equivalent to wet signatures, yet they are not exactly the same.
Wet signatures simply signify a person’s intent to be bound by the terms of a contract, since the person’s identity has already been established, he said. An e-signature, on the other hand, identifies the person, authenticates their identity and shows their intent to be bound by the contract. That requires technology and standards to address more than just the actual signature.
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