5 things to understand about remote online notarization
September 15, 2022 5:00 AM
Rymden - stock.adobe.com
The use of remote online notarization to close mortgages accelerated in the past two years, much of it born out of necessity during the COVID-19 pandemic. But legislation aimed toward allowing greater utilization and adoption of RONs has been debated for over a decade, although momentum for nationwide action has been growing more recently.
The speed at which policy surrounding RONs is developing has led to some obstacles and questions about what online notarization laws mean for the mortgage industry.
Here are five things to know about RONs:
The speed at which policy surrounding RONs is developing has led to some obstacles and questions about what online notarization laws mean for the mortgage industry.
Here are five things to know about RONs:
First RON law was passed in 2011
In 2011, Virginia became the first state to pass an online notary law. In the act, the state's legislators underscored the need for high-security standards in RONs, said Tim Reiniger, currently an advisor to the Uniform Law Commission working on behalf of the American Bankers Association and former director of the National Notary Association. Reiniger helped Virginia's leaders design its law.
"They wanted to have notaries signing with a secure signature, and they wanted to have the other signers being verified online using a federal standard," he said. "That was new at the time, because the big challenge is how to verify the identity of the signers online. And then they wanted the audio-video recording, which has been put into every law."
Montana and Texas followed with their own legislation between 2015 and 2017. But COVID-19 accelerated the pace and adoption considerably, as the need to have some form of remote closing option came to the fore. Several states enacted bills to permit them, if only on an emergency basis, due to the business disruption caused by the pandemic.
The health emergency led to calls for creation of a nationwide policy. "No one knew how long it was going to go on at the time — with closings being canceled and so forth," Reiniger said.
"In the meantime, there was this effort to push laws in the states by the land-title associations. And that's succeeded," he said. Prior to the pandemic, approximately 15 states had laws allowing for remote notarizations. That number has now increased to over 40.
"They wanted to have notaries signing with a secure signature, and they wanted to have the other signers being verified online using a federal standard," he said. "That was new at the time, because the big challenge is how to verify the identity of the signers online. And then they wanted the audio-video recording, which has been put into every law."
Montana and Texas followed with their own legislation between 2015 and 2017. But COVID-19 accelerated the pace and adoption considerably, as the need to have some form of remote closing option came to the fore. Several states enacted bills to permit them, if only on an emergency basis, due to the business disruption caused by the pandemic.
The health emergency led to calls for creation of a nationwide policy. "No one knew how long it was going to go on at the time — with closings being canceled and so forth," Reiniger said.
"In the meantime, there was this effort to push laws in the states by the land-title associations. And that's succeeded," he said. Prior to the pandemic, approximately 15 states had laws allowing for remote notarizations. That number has now increased to over 40.
Al Drago/Bloomberg
Bipartisan RON bills see support on the federal level
In 2020, Sens. Mark Warner and Kevin Cramer introduced the SECURE Act, which would authorize remote online notarizations around the country. While the initial impetus for the proposal has largely disappeared due to the success of state proposals, the hope for interstate recognition of remote notarizations remains.
"There is significant need and push for something to be standardized across the board. Our mortgage clients really appreciated having RON in place especially during the pandemic," said Shaun Devereaux, real estate and land use associate at Perkins Coie in Phoenix.
In the summer of 2021,the bill was reintroduced in the House of Representatives by Reps. Madeleine Dean and Kelly Armstrong. It passed earlier this summer with wide bipartisan support. The SECURE Act currently sits in committee in the Senate.
Widespread acceptance of remote online notarizations over the course of COVID-19 helped alleviate some of the apprehension among some initial detractors, facilitating passage of laws.
"They saw it in real life. And there was not a parade of horrible things that happened," said Brett Natarelli, member of Chicago-based law firm Dykema Gossett.
"The pandemic also made it somewhat costless in the sense that, if there were states who were afraid to go to RON — the reality is, everybody did during COVID," Natarelli said.
Were remote notarizations not an option, therecord-setting mortgage origination volumes of 2020 and 2021 likely could not have been possible, according to Devereaux.
"I would attribute a massive chunk of that to the RON legislation that happened," Devereaux said. "If we couldn't record these kinds of things, we wouldn't have seen a lot of the mortgage activity that we had."
"There is significant need and push for something to be standardized across the board. Our mortgage clients really appreciated having RON in place especially during the pandemic," said Shaun Devereaux, real estate and land use associate at Perkins Coie in Phoenix.
In the summer of 2021,
Widespread acceptance of remote online notarizations over the course of COVID-19 helped alleviate some of the apprehension among some initial detractors, facilitating passage of laws.
"They saw it in real life. And there was not a parade of horrible things that happened," said Brett Natarelli, member of Chicago-based law firm Dykema Gossett.
"The pandemic also made it somewhat costless in the sense that, if there were states who were afraid to go to RON — the reality is, everybody did during COVID," Natarelli said.
Were remote notarizations not an option, the
"I would attribute a massive chunk of that to the RON legislation that happened," Devereaux said. "If we couldn't record these kinds of things, we wouldn't have seen a lot of the mortgage activity that we had."
Robert D Schlie/rschlie - stock.adobe.com
California, Georgia are among key holdouts
Among the few outlier states who have not passed a permanent remote-online notarization, California stands out, both due to its population and the strong opposition from stakeholders, such as district attorneys fighting fraud, privacy groups and independent notaries, Reiniger said.
In the weeks to passage of the SECURE Act in the House this summer, the California League of Independent Notaries, or CLIN, spoke out against the bill, stating "the result will be diminished consumer protections, greater ease of impersonating notaries and ultimately increased fraud." CLIN, however, has spoken in favor of a different RON bill introduced in the California legislature.
Among other criticism the league lodged against the SECURE Act was that it would "enable federal preemption of state policy-setting for remote online notarization and electronic notarization that currently is controlled exclusively by the states," a claim refuted by some lawyers and trade groups, such as theMortgage Bankers Association and American Land Title Association.
But despite CLIN's opposition, the House bill also received approval from many members of California's congressional delegation.
"When you look at the numbers of bipartisan California supporters in the House, it shows you there's actually a good bit of support in California," said Cynthia Blair, former president of ALTA and a founder and chief operating officer of real estate law firm Blair Cato Pickren Casterline in Columbia, South Carolina. The SECURE Act also has backing from theCalifornia Land Title Association.
Most of the other states still on the fence are states where attorneys close the mortgage, including Georgia, Connecticut and South Carolina.
"The efforts there have become more complicated in the states because the attorneys have concerns about what the implications are for the closing, control over the closing and the money flow," Reiniger said.
Hesitation and misunderstanding also exists among attorneys about what would become of their roles. "There's a thought that RON would mean that attorneys would no longer handle closings, and in fact, that's not even remotely the case," Blair said.
"This is a tool to make a real estate closing transaction easier and more convenient and much more secure. frankly, for consumers who cannot be physically present," she said, adding that RONs would be a choice, not a replacement for in-person notarizations.
"One of the points that I make is why would I be a champion for something that would steal all my business?"
In the weeks to passage of the SECURE Act in the House this summer, the California League of Independent Notaries, or CLIN, spoke out against the bill, stating "the result will be diminished consumer protections, greater ease of impersonating notaries and ultimately increased fraud." CLIN, however, has spoken in favor of a different RON bill introduced in the California legislature.
Among other criticism the league lodged against the SECURE Act was that it would "enable federal preemption of state policy-setting for remote online notarization and electronic notarization that currently is controlled exclusively by the states," a claim refuted by some lawyers and trade groups, such as the
But despite CLIN's opposition, the House bill also received approval from many members of California's congressional delegation.
"When you look at the numbers of bipartisan California supporters in the House, it shows you there's actually a good bit of support in California," said Cynthia Blair, former president of ALTA and a founder and chief operating officer of real estate law firm Blair Cato Pickren Casterline in Columbia, South Carolina. The SECURE Act also has backing from the
Most of the other states still on the fence are states where attorneys close the mortgage, including Georgia, Connecticut and South Carolina.
"The efforts there have become more complicated in the states because the attorneys have concerns about what the implications are for the closing, control over the closing and the money flow," Reiniger said.
Hesitation and misunderstanding also exists among attorneys about what would become of their roles. "There's a thought that RON would mean that attorneys would no longer handle closings, and in fact, that's not even remotely the case," Blair said.
"This is a tool to make a real estate closing transaction easier and more convenient and much more secure. frankly, for consumers who cannot be physically present," she said, adding that RONs would be a choice, not a replacement for in-person notarizations.
"One of the points that I make is why would I be a champion for something that would steal all my business?"
Title companies will likely determine RON’s future
"The title companies have the control over this," Natarelli said. "There are a lot of situations where I as a lawyer, am asked to look at notary statutes and I say, 'This is a perfectly fine notarization.'
"I can say that to everyone I want. If the title and insurance company is not comfortable accepting the risk on it, then as a practical matter, no bank accepts it," he said.
Indications, so far, indicate title and settlement services providers are prepared for RONs. Following the recent passage of the SECURE Act in the House, the American Land Title Association expressed its support for it.
Federal passage also has key proponents among lawyers in attorney-close states like Blair, who is also the chair of ALTA's digital closing committee. She said it would fuel further investment in mortgage technology and
"If SECURE passes, we would see a much more rapid increase in this. I think some of the lenders could be sitting on the fence a little bit, not necessarily pushing to invest in the technology and the training without being certain of the interstate acceptance of documents," Blair said.
"I am a big proponent of the SECURE notarization act because it really would establish those minimum standards across the country and also take away that uncertainty," she said.
japolia - stock.adobe.com
Lingering hesitancy remains to go all in on RON
While there is widespread acknowledgement of the benefits remote notarizations provide, confusion and hesitation toward them are still prevalent, especially regarding a national policy.
Much of that concern comes from the rushed manner remote online notarizations needed to be introduced at the start of the pandemic, as that was done on a state-by-state basis.
"I think that half of the reluctance is, every state has been different and how do we make sure it's enforceable," Devereaux said.
"It's just been a whole slew of brand new laws and getting our brains around what's going on. And I think the reluctance is just not knowing what the rules are and how that's going to play out," he said.
The enforceability question has held back lenders from embracing RONs, according to Jennifer Understahl, partner at Perkins Coie in Phoenix, who said the newness of electronic notarizations have many still preferring in-person signings of paper documents, even where COVID emergency legislation remains in place, to avoid potential problems.
"They want to make sure their deed of trust is recorded and everything goes smoothly and there's no hiccups," she said. But sentiment will likely eventually swing toward RONs, comparing it to the path electronic signatures have taken.
"People were not comfortable with DocuSign before COVID — pre-COVID, not much DocuSign on commercial deals. Now. It's all over the place on everything," Understahl said.
At the beginning of the COVID-19 pandemic, variations of remote notarizations, all with similar sounding acronyms, permitted in emergency executive orders, came out and not all were completely secure. But the RON tools spelled out in the federal bills in Congress have high security standards, a point Blair and ALTA have tried to make.
"RON is a much more secure platform allowing for all of the things that you have to do with multifactor authentication and knowledge-based authentication and potential biometric authentication at some point," she said.
If passed, the SECURE Act could provide "another arrow in the quiver" when it comes to interstate recognition of RONs and that should cause fewer problems, Natarelli said.
"When a recorder has an objection or a title company feels uncomfortable, now you have a whole federal law to say — not only do you have the out-of-state-recognition law that's existed for 100 years, you've got this now too," he said.
But it won't eliminate problems altogether because "recognition is not the same as mandating enforcement," Reiniger said, noting that conflict has long existed with electronic mortgages and documentation, including notarizations, being accepted by county recorders.
"Keep in mind that notaries are state public officers, who have never been regulated before by the federal government," he said.
Other potential problems with the proposed federal statutes revolve around whether their rules are stringent enough, raising worries they might preclude introduction of stricter requirements from states. As an example, the SECURE Act doesn't address requirements for third-party providers of RON services, such as tech platforms and audiovisual companies who record the signing, Reiniger said.
While setting a minimum security standard, "then it goes on to say that the state cannot mandate a specific technology or technical specification."
"Our concern here is it's now setting maybe too low a standard for security," Reiniger said. He also pointed out that should remote notarization be authorized nationwide through passage of the SECURE Act, states like California and those with attorney closings face immediate challenges as they have no requirements in place addressing notary education and testing, bonds, journals, or technology security standards.
Despite the lingering hesitancy and concerns, though, the groundwork has already been laid for increased uptake of remote online notarizations, and the growth of the past two years are unlikely to be erased, Natarelli said.
"I think over time — whatever restrictions there need to be, whatever rules we need to have, whatever seems to work — will get passed. But it may be bumpy to start," he said.
Much of that concern comes from the rushed manner remote online notarizations needed to be introduced at the start of the pandemic, as that was done on a state-by-state basis.
"I think that half of the reluctance is, every state has been different and how do we make sure it's enforceable," Devereaux said.
"It's just been a whole slew of brand new laws and getting our brains around what's going on. And I think the reluctance is just not knowing what the rules are and how that's going to play out," he said.
The enforceability question has held back lenders from embracing RONs, according to Jennifer Understahl, partner at Perkins Coie in Phoenix, who said the newness of electronic notarizations have many still preferring in-person signings of paper documents, even where COVID emergency legislation remains in place, to avoid potential problems.
"They want to make sure their deed of trust is recorded and everything goes smoothly and there's no hiccups," she said. But sentiment will likely eventually swing toward RONs, comparing it to the path electronic signatures have taken.
"People were not comfortable with DocuSign before COVID — pre-COVID, not much DocuSign on commercial deals. Now. It's all over the place on everything," Understahl said.
At the beginning of the COVID-19 pandemic, variations of remote notarizations, all with similar sounding acronyms, permitted in emergency executive orders, came out and not all were completely secure. But the RON tools spelled out in the federal bills in Congress have high security standards, a point Blair and ALTA have tried to make.
"RON is a much more secure platform allowing for all of the things that you have to do with multifactor authentication and knowledge-based authentication and potential biometric authentication at some point," she said.
If passed, the SECURE Act could provide "another arrow in the quiver" when it comes to interstate recognition of RONs and that should cause fewer problems, Natarelli said.
"When a recorder has an objection or a title company feels uncomfortable, now you have a whole federal law to say — not only do you have the out-of-state-recognition law that's existed for 100 years, you've got this now too," he said.
But it won't eliminate problems altogether because "recognition is not the same as mandating enforcement," Reiniger said, noting that conflict has long existed with electronic mortgages and documentation, including notarizations, being accepted by county recorders.
"Keep in mind that notaries are state public officers, who have never been regulated before by the federal government," he said.
Other potential problems with the proposed federal statutes revolve around whether their rules are stringent enough, raising worries they might preclude introduction of stricter requirements from states. As an example, the SECURE Act doesn't address requirements for third-party providers of RON services, such as tech platforms and audiovisual companies who record the signing, Reiniger said.
While setting a minimum security standard, "then it goes on to say that the state cannot mandate a specific technology or technical specification."
"Our concern here is it's now setting maybe too low a standard for security," Reiniger said. He also pointed out that should remote notarization be authorized nationwide through passage of the SECURE Act, states like California and those with attorney closings face immediate challenges as they have no requirements in place addressing notary education and testing, bonds, journals, or technology security standards.
Despite the lingering hesitancy and concerns, though, the groundwork has already been laid for increased uptake of remote online notarizations, and the growth of the past two years are unlikely to be erased, Natarelli said.
"I think over time — whatever restrictions there need to be, whatever rules we need to have, whatever seems to work — will get passed. But it may be bumpy to start," he said.
