PERSON OF THE WEEK: Mortgage lenders would be wise to keep a close eye on the passage of the SECURE Notarization Act of 2021, which would in essence establish a national standard for the use of Remote Online Notarization (RON).
The bill – a previous version of which failed to pass last year – was recently reintroduced in the U.S. Senate. Its approval is considered urgent by industry groups including the National Association of Realtors, the American Land Title Association and the Mortgage Bankers Association, as the use of RON for mortgage closings and other mortgage-related documentation has become increasingly prevalent during the COVID-19 pandemic.
As of May, 35 states had enacted statutes that allowed notaries to conduct RONs under certain circumstances.
The revised bill, introduced by Senators Kevin Cramer (R-ND) and Mark Warner (D-VA), authorizes notaries public “to perform, and to establish minimum standards for, electronic notarizations and remote notarizations that occur in or affect interstate commerce, to require any Federal court to recognize notarizations performed by a notarial officer of any State, to require any State to recognize notarizations performed by a notarial officer of any other State when the notarization was performed under or relates to a public Act, record, or judicial proceeding of the notarial officer’s State or when the notarization occurs in or affects interstate commerce …”
If passed, the bill would not prevent states from legislating their own unique laws regarding the use of RON. Rather, its purpose would be to create a baseline standard, which, in turn, should help drive greater consistency from state to state, in terms of RON rules and regulations.
To learn more about what the passage of this bill would mean for the mortgage industry, and what has changed since the introduction of the first version, MortgageOrb recently interviewed Fred Gooch, senior vice president of compliance for First American Docutech.
Q: With the SECURE Notarization Act being reintroduced, what has changed since the original introduction in March of 2020 that has encouraged this return?
Gooch: The original SECURE Notarization Act was introduced at the beginning of the pandemic as a way to help standardize the various processes resulting from the differences in the state laws governing remote online notarization (RON). The past year has only showcased the clear need in the industry to modernize the notarial process to deal with unknown circumstances, such as a world-wide pandemic. Throughout the pandemic, borrowers and lenders alike embraced digital financial tools, and the reintroduction of the bill reflects that the demand for digital tools will remain high, even as we regain some normality this year.
Q: As we’ve seen during the pandemic, a few flaws in the methodology of the notary process have come to light. How does RON assist the end user and what showcases the eligibility of using it?
Gooch: The notarial act is designed to verify the identity of the signer and to confirm the signer is both capable of contracting and is not under any type of undue duress to apply their signature. The technology supporting verifying the identity of a signer has advanced dramatically and has become widely accepted. Having the ability to utilize a video recording of the signing ceremony creates a record to validate that there was intent to sign and that the signature was not applied under duress.
When analyzing the eligibility of RON, there are three pillars to keep in mind: marketability, recordability and insurability. For marketability, it’s important to evaluate whether or not the investor will purchase the eNote from the RON eClosing. With recordability, the county where the property is located must be able to record an electronically notarized security instrument. Lastly, for insurability, the title insurer must insure the loan if it’s executed with RON e-closing. If all three of those pillars are present, the e-eligibility of the closing is very likely.
Q: The notarial acts have traditionally been regulated on a local level. How has this assisted in a more widespread adoption, and how has the endorsement of trade groups and organizations helped the cause?
Gooch: The states have been prolific in adopting new RON legislation over the past year. Standardized rulemaking processes, such as the Revised Uniform Law on Notarial Acts (RULONA) and the MISMO RON certification, have it made it much easier for the states to produce consistent legislation. There are 35 states that have passed permanent RON legislation. With the open-mindedness shown by many states, as well as multiple groups and organizations backing such legislation, there will hopefully be a nationwide standard to ease the burden on lenders trying to juggle state laws that are very similar, but could have important differences.
Q: As more states adopt RON legislation, there are still issues that could come about that would be clarified with a nationwide standard. What are some of those semi-common situations and how exactly would a nationwide standard help?
Gooch: A nationwide RON law would help clarify confusion that often arises in circumstances where transactions cross state lines. For example, signatures on loan documents for a property located in Texas could be acknowledged by a Virginia notary utilizing RON. In this circumstance, under the SECURE Notarization Act, it would be clear that a remove notarization performed by a Virginia notary would be recognized in Texas. While this is permitted under Texas and Virginia law, a county recorder may reject the document because they are not familiar with Virginia’s RON certificate and seal.
A nationwide standard would provide more uniformity and certainty that could alleviate this type of confusion. Considering the way transactions are moving to a more digital process, a clear standard that crosses state lines is more efficient for all parties involved.