COVID-19-related mobility restrictions may increase the adoption of e-signatures in the mortgage space, but largest changes may be to people and processes instead of laws.
COVID-19 has forced many aspects of day-to-day life to go remote, and in the case of e-signature use in the mortgage space, the impact may already be rippling out. However, the biggest changes may not be to existing e-signature laws, but the people and processes that make up the mortgage ecosystem.
Margo Tank, U.S. co-chair of the financial services sector at DLA Piper, indicated that the adoption rate of e-signatures by the various entities comprising the mortgage ecosystem has grown throughout the last three to five years as people have become more comfortable with the technology and processes required. But she also noted that the surge in remote working associated with the COVID-19 outbreak over the last three weeks has accelerated the adoption base as well.
“I can’t really imagine that we’ll go back once people see the ease and efficiency and cost savings of moving their processes online. It takes a lot of energy and money to [implement], but once it’s done, I just can’t imagine that we’ll go back to paper, “ Tank said.
To be sure, any resistance that e-signatures have faced over the last 20 years may have more to do with people than the law itself. In 1999, the National Conference of Commissioners on Uniform State Laws proposed the Uniform Electronic Transactions Act, which gives legal recognition to electronic signatures. The act has since been adopted by 48 states in addition to Washington D.C., Puerto Rico and the Virgin Islands. Illinois and New York have also adopted their own laws around e-signatures.
But because there are so many stakeholders in the mortgage process—brokers, loan originators, closing agents, title agents, custodians—e-signatures may have taken longer to permeate the ecosystem. “Everybody in that entire mortgage ecosystem has to be rowing in the same direction and want to use electronic signatures on the transactions,” Tank said.
And the truth is that some may have been more hesitant than others, reluctant to embrace a “hybrid” process that included a mixture of e-signatures and paper. For example, while promissory notes and disclosures could be addressed with e-signatures, a deed of trust may still have been required to be notarized on paper. That’s starting to shift now, with online notarization already enabled in 23 states.
Anthen Perry, an associate with Mayer Brown, said via email that the firm anticipates seeing additional states consider laws allowing for Remote Online Notarization (RON). “We expect that state legislatures will be seeing an increase in lobbying from segments of the real estate industry to pass RON legislation, as a way of keeping deals moving in light of COVID-19 related social distancing measures.”
He also raised the possibility that RON legislation could be included in future federal stimulus measures, but cautioned there could be a bit of a “ramp up” period before the practice is widely used in the market.
Still, there are issues that could be causing mortgage ecosystem inhabitants some hesitation when it comes to e-signatures. Bradley Gardner, a shareholder at Polsinelli, gave the example of loan originators who are trying to resell a loan to somebody else. If the originator uses one e-signature platform and the person they are trying to sell the loan to uses another, there could be some confusion around how to proceed.
“It’s not totally clear how all of those products can move from one system to another, which again just kind of creates enough murkiness to kind of cause lenders to shy away from it,” Gardner said.
Other problems may not have a quick technical or even legislative fix. If a mortgage related issue should end up in court, for instance, judges who are used to ink on paper may not be sure what to make of e-signatures. This may require attorneys to do more legwork in order to bridge the knowledge gap. “Maybe now I’ve got to get an affidavit from somebody at DocuSign, for example, explaining how this signature was applied. It becomes potentially cumbersome from an enforcement standpoint,” Gardner said.
Reprinted with permission from the April 2, 2020 edition of Legaltech News © 2020 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.