 |
 |
 |
|
|
|
||
|
|||||||
|
|
|
|
|
|
||
|
|||||||
Posting
for
Monday,
September 16, 2002
by:
Bert Rush
ELECTRONIC
SIGNATURES/E-COMMERCE/ELECTRONIC RECORDINGS
Within the past month, reports have surfaced about a flaw in Microsoft
Word software that allows alteration of supposedly "secure"
documents, and forgery of digital signatures.
According to an article in the Seattle Post-Intelligencer, this flaw was
discovered by someone at Qualcomm (the cell phone company) and made
'public' on the Internet on August 26. By late last week, Microsoft Corp.
would say only that it was "investigating this issue," and had
not advised Word users or issued a press release because "there's no fix
available yet."
And so it goes. Just when you think this e-commerce is about to
swing into high gear, so to speak, there's another clink in the
clutch.
It's now been three years since the National Conference of Commissioners on
Uniform State Laws adopted the Uniform Electronic Transactions Act
("UETA"), which is model legislation recommended for adoption by
state legislatures, intended to promote uniformity between the states as to
basic requirements for electronic transactions. Some version of UETA
has now been enacted in 39 states and the District of Columbia.
And, it's been two years since Congress enacted The Electronic Signatures in
Global and National Commerce Act ("E-SIGN"), which became effective
October 1, 2000. E-SIGN, it may be recalled, validates many types of
contracts executed by electronic signature, preempting state laws that might
otherwise impede these transactions.
For awhile, UETA and E-SIGN were a "hot topic" in banking and real
estate circles. Meanwhile, several companies toiled quietly to
develop technology for electronic signatures, which each hoped would
become the industry (read "global") standard. But nothing much
happened.
Nothing much, that is, until June 28, 2002, when Fannie Mae announced it will
purchase "Electronic Mortgages" originated in compliance with its new
"eMortgage Manual," from originators who have equipped themselves to
provide "TrustID" digital certificates from Digital Signature Trust
Co. ("DST"). And, Fannie says in the future it will
also accept digital certificates from other providers accredited by the
Mortgage Bankers Association. Presumably, all
such certificates will be backed by the provider's warranty, as is
the case with DST's digital certificates.
So, now, are we in high gear yet?
Not quite. Fannie's new eMortgage initiative is limited to providing
standards and forms for execution of notes, but not mortgages. Here's
what Fannie's recent announcement says about the mortgage document:
"At least initially, an eMortgage that is delivered to us generally
will be closed by using a paper version of the security instrument
for the jurisdiction in which the security property is located and
a paper version of any related riders required for the specific
product or property type. (If the local recording jurisdiction is
able to accept these documents for electronic recordation--and
the title insurer takes no exceptions related to the use of an
electronic document or signature or the electronic recordation
of such a document--the lender may use an electronic version
of these documents.)"
What, you may ask, is holding up use of electronic signatures on the mortgage
doc?
Some say the problem is with local clerks and recorders, said
to operate their offices as 'fiefdoms' with little interest in
how things are done elsewhere or new technology. While there may be
some truth to these comments, it's probably more true than local recorders, as
well as title companies and bar organizations, have legitimate concerns about
the continuing presence of solemnity and formality in real estate
transactions. Specifically, recorders and title companies are
concerned that allowing execution of the mortgage document by electronic
signature may end the role of the notary in these transactions.
The bulwark of this concern is the Property Records Industry Association
("PRIA"), formerly known as the Property Records Industry Joint
Task Force. PRIA was organized in 1997 by various organizations
representing local clerks/recorders, notary associations, and the American Land
Title Association. It has a website at http://www.pria.us
.
PRIA's purpose is to develop and promote uniform standards for public records
systems. This includes UCC personal property records, as well as land
records. The goal is to prepare local and state governments to facilitate
electronic commerce.
One of PRIA's projects has been to promulgate national standards for
notarization of documents. This project has now yielded a "white
paper," titled "Essential Notary Standards And Principles In The
Recording Process," which was approved by the Executive Board of
PRIA last February. Here's what the white paper says about the
subject of "Acknowledgment":
"Because the acknowledgment is perhaps the most common
and important of all notarizations performed in the United States
and that used to authenticate documents of great monetary
value, it is essential that its principal components be understood
by parties interested in the integrity of recordable documents
The
essential components of an acknowledgment must include:
(1) Personal Appearance.
The document signer must appear
in person before--and directly communicate with--the notary
public (or other legally authorized substitute), face to face.
Physical presence allows the notary to identify the signer and
make observations and commonsense judgments that this
individual appears willing and aware.
(2) Proof of Identity.
The notary must positively identify the
document signer beyond a reasonable doubt, either through
personal knowledge of the individual's identity, reliable
identification documents ("ID cards") or the sworn vouching
of a personally known credible identifying witness.
(3) Act of Acknowledgment. The signer admits or
recognizes
the existence of an agreement by signing and thereby
evidencing intention that this particular document shall be
binding and in full force and effect.
Acknowledgment may
also include the admission of ownership of a previously made
signature.
(4) Lack of Duress.
Essential to the acknowledgment is the
notary's observation that the signer was not under direct
physical or psychological threat or duress at the hands of a
third party.
(5) Awareness.
Also essential to the acknowledgment is
the
notary's observation and lay judgment that the signer
appears to be aware of the document signing. Only a few
states stipulate that ascertaining a signer's awareness is
a statutory duty for the notary; however, only a reckless
notary would proceed with a notarization if there were any
reasonable doubt about the signer's awareness of the
transaction.
The
Property Records Task Force maintains that any
'electronic acknowledgment' must make the same guarantees
as those of the traditional act of acknowledgment itemized
above. (Footnotes omitted.)"
So that, gentle reader, is where we are: At an important crossroads in
the development of electronic commerce. And Fannie Mae is asking us,
recorders and title companies, "what's next?" Do we forge
ahead, dispensing with some of the important safeguards provided by the
notary? Or not?
...which brings to mind that article in Friday's edition of the Seattle
Post-Intelligencer....
http://ul.firstam.com/landsakes/seattlepost091302.pdf
Questions, comment, argument? Just press the "reply" button....
