Question 1: Why Bother?
Your firms are barely keeping up with demand in an era of record low interest rates, so why take the time to incorporate these technologies?
We can all see the immediate needs for the technology. Maryland and Virginia are, as of March 31st, all under stay at home orders, but exemptions exist that allow mortgages to continue to close and RON is not strictly necessary to continue operating. So why take the time and expense of doing something new?
– Cultural Shifts: social distancing is not just a government recommendation, it is becoming a socially-enforced value. To stay at home is patriotic, to stay at home is to value the elderly and
immune-deficient. Whether or not these practices take hold is impossible to predict, but it is possible that each winter when new flu starts to make its way around, a greater number of Americans will look for ways to avoid public gatherings. And as it stands there is no certain end date to our current crisis.
– Minimal Expense: the biggest cost is time and attention. While there is no direct technological cost, there may be attorney’s fees if you seek the advice of counsel; but the biggest
investment is the time spent developing the procedures. Those who are willing to invest that time will be poised to corner the market if there is a second wave in the fall or if current shutdowns persist through the summer.
– Administrative Benefits: E-signatures and Remote Online Notarization mean faster turnaround of closing documents, and eliminate missed signature lines and missing closing documents. Also, borrowers aren’t forced to miss work for closings and to travel for closing.
Question 2: Who should I consult?
First talk to your attorney. Are there any special issues that you have to deal with relating to your loans or the structure of your Brokerage/Bank/Financial Institution? Because this technology is so new, you will need to develop your own proposed procedures.
– Present your Proposal: Your underwriters and investors are unlikely to have their own procedures in place yet, so if you approach them without ideas and ask them to develop something, the answer is almost certain to be no. If you come to them with a fully-developed plan, you are more likely to at least start a conversation.
– Don’t forget anyone: You answer to many different higher powers, and with the new technology it is important to give them all an opportunity to object. Don’t forget to ask:
3) E&O/Insurance Carriers
4) Document Preparation Services
6) Board of Directors
7) Your loan processor and loan officers, who might have insights on the day-to-day issues and could be a source of creative problem solving.
– Make sure you can sell the loan: Never forget the golden rule: whoever has the gold makes the rules.
This assumes the business already has a system for the secure upload of documents by the title company as many Banks and Brokerages do. It also assumes that you have software for working with Pdf documents. Lenders that still employ facsimile and email for the transmission of documents may need to incur technology costs.
Question 3: What do I need to buy?
One piece of good news is that you don’t need to purchase the technology yourself. The document signing and notarizing technology will be controlled by the Title Companies and Notaries.
– What about E-Vaults?
While the eVault technology for the storage of electronic Notes is
fascinating and worth exploring, it creates a new financial cost on the mortgage industry that is
simply not a necessary expense at this time. The systems for the storage of physical notes are
already in place and are already optimized. Because the Promissory Note does not require
notarization there is no reason why a borrower cannot physically sign and return the note to the
Lender via overnight carrier post-closing. This is especially ideal in refinance transactions where
the Note will be in the Lender’s possession prior to disbursement. In a sale a title company could
take possession of the Note on the day of closing to assure possession prior to disbursement.
Question 4: How do I protect myself?
As with all areas of the underwriting process, there will be a necessary level of due diligence to protect yourself and your investors. The following are a list of recommended due diligence items that can serve as a starting underwriting guideline. As the technology becomes more common in the marketplace many of these questions will no longer need to be asked, but early adopters will need to take extra precautions.
1) Does the Title Insurance Underwriter permit the agent to use RON and do they approve the particular software utilized in the closing?
2) Does the Title Agent’s E&O Carrier permit it to use the technology?
3) Has the acting Notary complied with State Requirements for Remote Online Notaries? For example: in Maryland Notaries must provide notice to the Secretary of State before it uses Remote Online Notary technology.
4) Does the title commitment contain any exceptions relating to the use of RON? Watch out for this. Prior to the executive order Maryland title companies were instructed by major title insurance underwriters to take exception to the use of RON on their title insurance policies. This shifts all risks relating to the effectiveness of the notary onto the Lender.
5) Will you have access to the recordings and data? If a challenge is ever made to the loan documents a video recording of the actual signing will be invaluable in the defense. Find out how these recordings will be stored and for how long they will be stored.
6) Take caution before building your own RON signing system. If the lender owns or controls the technology solutions, and if the technology turns out to be faulty, title insurers may fight the coverage. Keep in mind that title insurers will not want to cover problems that you create.
Question 5: What about the potential for fraud?
The ALTA Loan Policy Covered Risk 9 covers lenders against “The invalidity or unenforceability of the lien of the Insured Mortgage upon the Title. This Covered Risk includes but is not limited to insurance against loss from any of the following impairing the lien of the Insured Mortgage
(a) forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation;
(b) failure of any person or Entity to have authorized a transfer or conveyance;
(c) the Insured Mortgage not being properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered;
(d) failure to perform those acts necessary to create a document by electronic means
authorized by law;
(e) a document executed under a falsified, expired, or otherwise invalid power of attorney;
(f) a document not properly filed, recorded, or indexed in the Public Records including failure to perform those acts by electronic means authorized by law; or
(g) a defective judicial or administrative proceeding.” [emphasis added]
This means that even if the technology feels risky or uncomfortable, the title insurers are there to absorb that risk in the marketplace. This technology, if used properly, has the potential to decrease the risk of forged notaries. Forgery and identity theft already exist, but the RON platforms give the title agents enhanced tools to verify a person’s identity beyond the mere inspection of a driver’s license.
Question 6: What are Hybrid Closings?
As referenced in Question 3, not all loan documents must be electronically signed. Documents that require wet signatures, such as the Note, can be separated out and physically signed by the borrower and returned to the lender via overnight carrier. This is referred to as a Hybrid Closing. Each lender can decide for itself, or based on the instruction of their investor, which documents require wet signatures.
– Notary documents must be electronically signed. If your underwriter or investor insists that one of the notarized documents must contain wet signatures, then the RON technology is not worth using. There is a cost to the use of RON, so unless all of the notarized documents are able to be executed electronically, then it is inefficient to have the borrower meet with a physical notary
in addition to paying for an online notary.
Question 7: Is this just for residential mortgages?
Absolutely not, the RULONA statute makes no distinction between the types of transactions in the effectiveness of RON to notarize documents.