Editor’s note: We’ve come a long way in the race to slash paper from real estate deals, industry insiders say, but there’s still a long way to go. More big companies, trade groups and entrepreneurs are investing in technology platforms, back-end systems and software to automate the real estate transaction, but most consumers are still closing the old-fashioned way. In this three-part series, Inman News examines where we are in the paperless real estate initiative. (See Part 2 and Part 3.)
The paperless real estate transaction promises to save money, speed up closings and make buying a house easier and simpler. Why, then, are so many transactions still paper-laden?
“Paperless by 2000,” read the headline in a 1997 Inman News story — but it’s 2006 and consumers still find themselves faced with a stack of papers to sign at the closing. A number of factors are responsible for the bottleneck, industry figures say.
Go to www.paperlessnow.org to learn more about the Paperless NOW initiative.
Randy Schaffner, president of Stewart Title’s Wichita Falls, Texas, branch, is proud to say that he presided over about a dozen electronic closings in the last year. One of the country’s first electronic closings took place in May 2005, when military couple Cathy and Matt Simmons closed the sale of their home using electronic closing platform eClosingRoom at Schaffner’s office.
Schaffner acknowledges, though, “there’s an industry culture that has to catch up with us.”
At least in Schaffner’s neck of the woods, some lenders have been slow to participate. Of the dozen or so electronic closings done in the Wichita Falls office in the last year, only a couple used lenders. The rest were cash transactions, Schaffner said.
There are encouraging signs, however, notes Darren Ross, Stewart’s director of electronic commerce.
“We have had conversations recently with the top 10 lenders and they are all engaged in various e-mortgage initiatives,” Ross said. “They are committed internally to doing these things,” though still in the exploratory stages, he said.
A major positive sign is that Fannie Mae and Freddie Mac, the country’s largest purchasers of mortgages on the secondary market, have indicated they will accept electronic mortgages, “provided the notes meet their requirements,” Ross said.
Ross said one of the stumbling blocks to adoption is that mortgages are complicated processes. “There’s lots of components from origination through closing and investor delivery. All the players need to be e-ready and able.”
Schaffner seconded Ross’s comment. “You (the title company) need to analyze your internal and external workflows or process flows to make sure that the e-closing is going to integrate with your current office. That’s one of the things that can inhibit a closing.”
The order in which certain tasks are performed and similar elements must be gone over to make sure it’s compatible with the e-closing, Schaffner said.
Another obstacle: while more counties are accepting electronic documents, still, all too often, when it comes time to file with the county recorder, it becomes necessary to print out a number of documents and haul them to the recorder’s office, said Margo Tank at Buckley Kolar LLP in Washington, D.C.
Tank and fellow Buckley Kolar partner Jerry Buckley played a big role in creating federal legislation that made electronic signatures legal in 2000.
Bringing county recorders into the loop is critical to making the transaction paperless from beginning to end, Tank said. Sixty-five counties had implemented electronic recording systems as of Dec. 5, 2005, according to the Property Records Industry Association.
It may be that the seemingly slow pace of adoption is simply an organic part of the process. For example, three major pieces of legislation have been created to help along the paperless transaction: the Uniform Electronic Transactions Act (UETA); the federal Electronic Signatures in Global and National Commerce Act (E-SIGN); and the Uniform Real Property Electronic Recording Act, or URPERA.
But often, after legislation is adopted, there is a period before it is put into practice.
“E-SIGN was enacted in 2000, but there was no immediate regulatory guidance, so people were apprehensive,” Tank said.
“It’s a matter of just basically getting comfortable with the law,” the attorney said. “Also, technological advances needed to be made and software standards needed to be developed in order to make going electric easier and more efficient.”
Much progress has since been made on the technology side, and industry standards to help in making mortgages electronic have been established by MISMO, which stands for Mortgage Industry Standards Maintenance Organization, a not-for-profit subsidiary of the Mortgage Bankers Association.
“I think at the end of the day this slower process will result in a better, more efficient product offered to the market,” said Tank.
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