The adoption and implementation of remote online notarization (RON) received a tremendous boost during the COVID-19 pandemic. Buyers, sellers and title agents are looking to close transactions in the safest way possible. According to the American Land Title Association (ALTA), “Forty-eight states and the District of Columbia have either passed a RON law or issued an executive order pertaining to remotely notarizing documents. Some have done both.”
In December of 2020, ALTA reported that RON use had increased 547 percent during the year compared to 2019. If you are a “Star Trek” fan, the lightning-fast adoption of RON – as well as alternative remote closing methods such as Remote Ink-Signed Notarization (RIN) – has felt like the title industry has gone from cruising to warp speed in a nanosecond. It can even feel tempting to utter one of the show’s classic lines like “Beam me up, Scotty!” when thinking about such transformative change.
But let us back up a bit. As the automobile was invented and became a commonplace form of transportation, society built an accompanying infrastructure – including roads, highways, bridges and tunnels. The same is needed for RON. However, it takes time to develop secure and accessible technology that everyone can use. It requires effort to garner the acceptance of the county recorders who must be ready, willing and able to record native electronic instruments. Creating uniform laws to ensure interstate legal recognition and consumer confidence is also no easy matter.
Properly building out RON infrastructure necessitates the continuous collaboration of numerous parties, including individuals, industries and organizations. For example, MISMO, the Mortgage Industry Standards Maintenance Organization, has been working on standards concerning credential analysis, borrower identification, audio-visual requirements (including the recording of the electronic notarization process) and audit trails. PRIA, the Property Record Industry Association, has been developing national standards and best practices for the land records industry. ALTA and the Mortgage Bankers Association (MBA) have also joined forces to establish model RON legislation. Finally, there are numerous other stakeholders not identified here who have, and are, tirelessly working to enable the requisite RON infrastructure.
Currently, the federal Senate bill (SB) 3533, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (otherwise known as the SECURE Notarization Act), is pending. If passed in 2021, the SECURE Notarization Act will permit RON across the nation and provide for minimum standards and interstate recognition. To track the progress of the SECURE Notarization Act, click on the link provided for SB 3533.
During this time of rapid transition, it is important to keep abreast of the latest RON developments, to “boldly go” forth and not end up like another classic science fiction show: “Lost in Space.”
We break down a complicated process by describing the five main components of the Digital Closing Process.
Remote Online Notarization (RON) started making headlines
several years ago but was slow to catch on because, frankly, it didn’t really seem
necessary. Then, we could all gather in the closing office and sign with paper
and pen, and the technology was new and a little scary. It was like a “big
black box.” Few understood how the technology worked, and most approached RON as
a convenience for the few people who perhaps couldn’t easily get to the closing
office. Articles were written, webinars were presented, legislation moved
forward piecemeal, but since RON was considered only a “nice to have” option,
there was no widespread incentive to embrace it. It would be understood and
adopted over time.
Well, “TIMES” HAVE CHANGED!
We are NOW in the
midst of a national pandemic. States are issuing “shelter in place” orders; the
federal government is urging people to stay at home; and we’re afraid of getting
too close to one another lest we expose ourselves or someone else to the COVID-19
virus. The nation is at home and unable to conduct business as usual.
The real estate, title, and financial industries are a
cornerstone of our economy. Our businesses are essential to our country’s entire
system of trade, exchange, and consumption of resources. So how do we continue with
our business without the need for physical contact? In states where we can, one
way is to turn to RON, which enables us to conduct closings remotely. Consumers
can go online and execute documents electronically while the closer and notary
are located elsewhere.
Many states have recognized RON’s potential as a solution
and enacted legislation. There is currently extensive, ongoing efforts to
legalize RON across the nation through federal legislation. However, legalizing
RON is not enough because RON requires the efforts of many stakeholders to be
successful. We all have to work together and be “on the same page.” Do you know
what happens before or after you do your part in the Digital Closing Process?
Alliant National’s new Components of a Digital Closing
series was created to give people a common understanding of both in-person
electronic closings and remote digital closings facilitated by RON. We produced
this series of handbooks to demystify the process – eliminate that “black box” –
and provide readers with the “big picture” of how it all works. There are a lot
of moving pieces and a lot of players who must come together (hence the
“eCollaboration” component of the series) to create the infrastructure needed
for the successful adoption and implementation of Digital Closings. Our series
of handbooks shows how the Digital Closing Process works from beginning to end.
To break down a complicated process, we’ve described five
main components of the Digital Closing Process in these series of articles as:
eSign = electronic signing or electronic
signature
eNotary = electronic notary or electronic
notarization
eRecording = electronic recording
eVault/eNote = electronic vault and electronic
note (respectively)
eCollaboration = electronic collaboration
It all begins with eSign and expands from there. The advent
of recognizing an electronic signature as legally enforceable led to electronic
notarization – after all, an electronic notary (and the principals and
witnesses) must be able to electronically sign documents. Then, that
electronically executed and notarized digital deed, mortgage or deed of trust
must be recorded in the public records, so electronic recording (or the
acceptance of “papering out” as discussed in the article on eRecording) must be
available, or all is for naught! And what about the electronic note? Well,
there is a system set up to facilitate the creation, transfer and sale of
eNotes through the use of an electronic vault.
Within each article, we explain what the component is or does;
we discuss its history or describe its legal evolution; we provide links to
other articles or resources on the subject; and we provide a technological
overview.
The current health crisis presents many challenges for our
industry, but it also represents a unique opportunity to implement technologies
that will ultimately make the real estate transaction safer and more efficient
than it has been in the past.
It is our hope that you will find Alliant National’s Components of a Digital Closing series
be a comprehensive, ready reference as the industry transitions toward the
digital closing environment.
Interest in digital closings is surging, and Alliant National is committed to making sure you stay ahead of the curve.
Today, we’re releasing to our
agents a new series of handbooks exploring the elements and principles of
digital closings.
Extensively researched and
content-rich, Alliant National’s Components
of a Digital Closing series demystifies the Digital Closing Process and its
five major components: eSign, eNotary, eNote/eVault, eRecording and
eCollaboration. Each handbook in this series explores one component. The
purpose of the component is briefly described and placed within the context of
the broader Digital Closing Process. Laws, regulations, technological
requirements and specific technologies are discussed where appropriate.
It may seem like “Title Insurance 101” – but small mistakes can be signs of fraud or misuse of funds or outright intentional undoing of a clear road to closing on a real estate deal.
It may seem like
“Title Insurance 101” – but small mistakes can be signs of fraud or
misuse of funds or outright intentional undoing of a clear road to closing on a
real estate deal.
Not everyone knows everything
all of the time; a thousand items have to fall into place and “add
up” in order to make the process smooth and completely unencumbered.
A power of attorney
showing up in the middle of a transaction (or at the end) should be
scrutinized. So should cashier’s checks drawn from geographical areas that
don’t coincide with the seller’s, buyer’s or property’s locale.
Take a look at the
potential red flags below; being aware is half the battle.
Preliminary Title
Report/Title Search
Red flags” involving the preliminary title report and title search may include:
Ordered
by, prepared for, or mailed to a party other than the lender.
Property
seller is not in title (possible purchase disguised as a refinance or improper
property flip).
Seller
owned property for a short time with a cash-out on the sale.
Notice
of default is recorded (possible cash-out purchase with a straw buyer or
foreclosure rescue).
Report
indicates delinquent property taxes.
Report
indicates modification agreement on existing loan(s).
Title
documents show the borrower or Seller on a purchase is not the owner of record.
For a purchase transaction, the seller
should be the owner of record.
For a refinance transaction, the
borrower on the loan application should match the owner of record on the title
documents.
Escrow/Closing
Instructions
“Red flags” involving escrow
and closing instructions may include:
“Fill
in the blank” or generic escrow instructions.
Change
of sales prices to “fit” the appraisal.
Odd
amounts paid as a deposit/down payment.
Significant
or unusual buyer credits or fees.
Unusual
amendments to the original transaction.
Seller
on Closing Disclosure different than seller on preliminary title report.
Evidence
of “white-outs” or alterations without initials.
Payoffs
to third parties whose lien was not listed on the preliminary title report.
Reference
to another escrow.
Down
payment is paid into escrow upon opening.
Cash
is paid outside of escrow to property seller.
Sale
is “subject to” property seller acquiring title.
Entity
acting as the property seller is controlled by, affiliated with, or related to
the applicant or another party to the transaction.
Buyer
is required to use a specific broker/lender.
Sale
of subject property is not subject to inspection.
Power
of attorney used with no explanation.
Power
of attorney is not properly documented/recorded.
No
one wants to learn that fraud or misuse of funds or fraudulent transfers
happened once a closing is complete, yet those events can be part of real
estate closing worlds.
Appraisals
can also prove to be undependable, as parties involved can have
less-than-legitimate agendas.
After the Exchange of Funds (regardless of the dollar amount of the loss)
Contact your
bank.
Speak with someone who has authority to
reverse or “recall” the wire. This contact may be in your bank’s fraud
department. Note: A best practice is
to identify this contact and establish a relationship with him or her before a
wire fraud incident occurs.
Make sure the bank understands you have been
the victim of a Business Email Compromise (BEC) scheme.
Request a Wire Recall or SWIFT Recall
Message.
Ask your bank to fully cooperate with law
enforcement.
Contact your
local FBI office (https://www.fbi.gov/contact-us/field-offices). The FBI has a number of protocols aimed at
freezing and retrieving funds. They will activate appropriate protocols based
upon the circumstances of the loss. The American Land Title Association has more information on the FBI’s protocol for reversing
fraudulent international wires.
Complete and
submit a Complaint Referral Form to the FBI’s Internet Crime Complaint Center (IC3). Be prepared to
provide all details related to the transaction including date, amount, the name
of your bank and the beneficiary bank, account numbers, contact information,
etc.
Contact the fraud
department at the beneficiary bank to notify them about the wire-recall request
due to the fraud. Provide details and request that the account be frozen.
Contact the
Alliant National Claims Department by first calling the Claims Manager at (303)
682-9800, ext. 425, and then follow up by emailing applicable information to Claims@alliantnational.com.
When the Money Goes Out, Minutes Count
The 48-hour period following a fraudulent
wire transfer is critical; immediately contacting your bank, the local FBI
office and submitting a complaint to IC3 as described above will increase your
chances of recovering the funds.
Since international wire
fraud has a very low chance of recovery or reversal of the wire, special
precautions are advisable, such as requiring “in-person authorization” from
only those authorized signers on an out-going international wire, and having
such precautionary requirements agreed upon with your bank.
Appraisals and appraisal reports may contain “red flags” indicating
potential fraud. “Red flags” may include, but are not limited to:
Owner of
record listed is inconsistent with other information disclosed in the loan
file.
Occupant is
identified as a tenant on an owner-occupied refinance application.
Owner-occupied
refinance transaction, but the property is vacant.
Occupant of
subject property is listed as “unknown.”
Appraiser uses
public record, exterior inspections, or property seller/builder as sole data
sources.
Illegal zoning
is checked on first page of the appraisal.
“Physical
deficiencies or adverse conditions that affect the livability, soundness, or
structural integrity box” is checked “Yes” on the first page of the appraisal.
Subject
property has increased in value in a stable or declining market.
Land value is
atypically high for the area.
Excessive
adjustments in urban or suburban area where marketing time is under six months.
Timeframe between
sales does not allow enough time for reported renovations made to property.
Loan file
contains a note with a predetermined value.
Ineligible
Condition (C5, C6) or Quality (Q6) ratings.
Blank spaces
on the form (borrower, client, occupant, etc.).
Missing photos
or maps.
Photos do not
match description of property.
House number
in photo does not match property address.
Photos do not
match the floor plan sketch (i.e. location of garage, fireplace, etc.).
Photos of
subject property taken from odd angles or with no depth of field, or have been
cropped or otherwise altered.
Photos reveal
items not disclosed in appraisal (e.g., commercial property next door, railroad
tracks, another structure on premises, etc.).
Weather
conditions in photo of property are not appropriate for the date of the
appraisal (i.e., July photo shows snow on the ground for a property in
Illinois).
“For rent” or
“for sale” sign in photo of subject property on owner-occupant refinance application.
Most recent
sale(s) and/or listing information on subject property and/or comparable
properties are missing.
Use of
unverified comparable sales (i.e., not verified through traditional data
sources such as MLS, sales office, Closing Disclosure, real estate agent,
etc.).
Use of
inappropriate comparable properties (e.g., that are not similar to the subject
property when comparable properties are present).
Excessive
distance between comparable properties and subject property.
All comparable
properties are from different town(s) than the subject property.
Lack of
bracketing with comparable sales used (e.g., all sales are significantly larger
in living area than the subject).
Appraisal is
ordered and/or prepared prior to date of sales contract or loan application.
Appraiser is located
outside of the county in which the property is located.
Sales contract “Red flags” indicating potential fraud may include, but
are not limited to:
Multiple sales
contracts exist.
Sales contract
is dated after the appraisal date.
Sales contract
is subject to an existing lease on an owner-occupied transaction.
Sales contract
includes personal property or prohibited sales concessions.
Sales price is
significantly above or below market value.
Purchase
contract addenda adjusts the sales price.
Applicant is
not shown as purchaser.
No real estate
professional involved.
Real estate
agent(s) used, but not paid a fee; or no real estate agent(s) involved at all.
Seller is a
corporation or LLC and the subject property is not new construction.
Seller is an
affiliated real estate agent, trust, relative or employer.
The parties to
the transaction are related by family or commercial enterprise.
The contract
is not dated.
Names are
deleted from or added to the purchase contract.
The contract
is an “option contract.”
The contract
was assigned or is assignable.
Earnest-money
deposit is an unusually high amount, consists of the entire down payment, or is
an odd amount.
Contract has a
very short inspection period and upon satisfactory inspection, the buyer is to
notify the settlement agent who is then supposed to transfer a large portion or
all of the deposit to the seller (scam is that 10 business days later, it is discovered
that the cashiers’ check is counterfeit after the money has been sent, and the
escrow account suffers a shortage).
Recommendation is to contact the bank or
entity issuing the cashier’s check to confirm that the cashier’s check number
and amount is valid prior to depositing the item in the account. Most banks
will confirm this by telephone. Due to the increasing occurrences of
counterfeit cashier’s checks, most banks have instituted mandatory holds on
cashier’s checks. It is not uncommon for a hold to last up to 10 days (check
with your bank to confirm their policy).
Name and
address on earnest-money deposit check is different from that of the buyer.
Earnest-money
deposit checks have inconsistent dates, for example:
Check #111 dated November 1
Check #113 dated September 1
Check #114 dated October 1
Earnest-money
check is not cashed or is not reflected on the Closing Disclosure.
This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.
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