On July 25, 2000, the first paperless real estate transaction took place in Broward County, Fla. That transaction involved the purchase and financing of a home and took less than five minutes to record.
Confirmed documents bearing all necessary recording data were immediately returned to the settlement agent via e-mail. Images of the recorded documents were immediately available on the county’s Web site.
Unfortunately, in the ensuing 12 years, real estate transactions in many parts of the country, including the District and Maryland, are still being recorded the old-fashioned way. That is, with paper, blue ink pen, a notary stamp and one or more trips to the courthouse or recorder of deeds. Each trip requires a wait at one or more windows, the payment of the necessary fees and presentation of the original documents for recording.
According to Tom Kennedy, acting director of records, taxes and treasury for Broward County, only about one-third of the Florida counties have now adopted some level of electronic recordings.
In Virginia, Fairfax and Loudoun counties have adopted and are using electronic filing systems for land records. Their systems permit anyone who pre-registers to electronically deliver documents to the courthouse for recording. Electronically delivered and recorded documents are verified and returned in one to two business days.
Jurisdictions vary in how quickly they can manually process, image and return the original documents. According to Susan Simpson, director of operations at Passport Title Services, LLC, in Rockville, “Montgomery County, Md., and most Northern Virginia counties return manually processed originals in approximately two weeks. The recorder of deeds office of the District of Columbia is now taking approximately four weeks to return original recorded documents. Prince George’s County, Md., returns original documents in approximately eight weeks.”
But there is still some hope that fully paperless real estate transactions will become a reality nationwide. Leading the way are members of the National Association of Realtors who have been using several different digital signature programs for several years. These programs permit Realtors to have their clients sign, initial, date and otherwise legally complete the purchase and sales contract from the comfort of their computer, tablet or smart phone. Some of these programs also provide signature tracking, automatic notification to all parties when additional signatures are affixed, contacts management, long-term storage and retrieval of the digital documents.
The benefits of digital signatures to Realtors and their clients are obvious: The purchase and sale contracts no longer need to be driven around town; and the buyers and sellers need not gather together in one place and time. The days of the illegibly re-faxed contracts, containing hand-made strike outs, insertions and endless initials, will be over once digital signature programs are universally adopted. One other significant benefit is that the purchases and sales documents and all related disclosures, certifications and addendum can now be permanently signed, stored and retrieved in electronic format. Buyers and sellers can take their time, in the comfort of their own homes (or wherever they may be), to review these documents, or with a click of a mouse, send them to their attorney for pre-signature review.
One such digital signature program is called Authentisign. The Metropolitan Regional Information System (MRIS) provides Authentisign to its Realtor clients for a $69 annual fee. This program can be used in English or Spanish, is approved for use with Federal Housing Administration (FHA) documents and complies with the requirements of the Federal Electronic Signatures in Global and National Commerce Act (E-SIGN).
E-SIGN was enacted in 2000 and provides that a contract or signature “may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” This landmark legislation opened the door for secure, authentic, legible and instantaneous signing of legally binding real estate contracts.
Are these programs secure? DocuSign, the official electronic signature solution for the members of the National Association of Realtors, uses digital certificates to provide security and authentication. User authentication is enhanced by the fact that it is e-mail based, requires an access (PIN) code, and employs third-party identity checks. Virtually all electronic signature solutions generate an “audit trail” that includes the path the documents traveled and computer-generated event information such as the date and time the documents were signed as well as the IP address of the computer used to sign and send the documents.
In a recent interview with Security News Daily, Tom Gonser, DocuSign’s founder, states, “E-Signatures give the user the ability to prove that a transaction has occurred that’s way beyond what you can do with paper.” Once a signed document is uploaded and the e-signature attached to it, the company’s firewall-protected server encrypts it and then “hashes” it — i.e., creates a mathematical algorithm of the file that can be checked to see whether it has been corrupted.
Perhaps as digitally signed real estate sales contracts become ubiquitous, more lenders will become comfortable accepting them in connection with mortgage loans and short sales. Routinely, despite the mandates of the E-SIGN legislation, many short-sale servicers, such as Bank of America, continue to refuse to accept short-sale purchase and sale contracts that are digitally signed by all parties.
Bank of America has insisted that all parties go through the hassle of manually re-signing the 50 to 60 pages of documents that now comprise the standard purchase and sale package. These refusals come despite pronouncements from their own investors, such as Freddie Mac, that digital signatures on purchase and sale agreements are now acceptable.
The time has come for all participants in the real estate industry to embrace digital signatures on contracts and electronic filings of real estate documents in our land records offices.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord settlement attorney and lender. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at email@example.com.