E-SIGN and UETA : Another Step Toward Paperless Transactions
by Mary Catherine Pelini Grillo
I: Introduction
Business-to-business Internet companies have been using electronic signatures, or e-signatures, for some time. But the lack of any laws addressing e-signatures, and the resulting uncertainty about their enforceability, on both the state and national levels have kept e-signatures out of most transactions. Ohio (among other states) and the federal government have each taken steps to clear the uncertainty surrounding enforceability of e-signatures and electronic records, or e-records. On June 14, 2000, Governor Taft signed the Ohio Uniform Electronic Transactions Act, or UETA, which became effective September 13, 2000. On June 30, 2000, President Clinton signed the federal Electronic Signatures in Global and National Commerce Act, or the federal E-SIGN Act, which became effective (as to most provisions) on October 1, 2000.
For the time being, as new as these laws are, they haven't begun yet to affect how REALTORS do business with their clients, i.e. most REALTORS, at least in Ohio, haven't begun yet to enter into contracts and exchange other documents, with their clients online. (When this begins to happen, we'll summarize the details in a follow-up paper.)
So how are these laws affecting real estate right now? Lenders involved in real estate transactions are in fact already taking full advantage of the new laws. Here is a description of a completely paperless, entirely electronic mortgage loan transaction facilitated by the new laws:
A couple decides to purchase a new home from a homebuilder. They apply online for a mortgage loan from an online lender that underwrites, processes and approves mortgage loans using electronic technology. The online lender prepares the loan documents in electronic form. The title company then prepares the closing documents, also in electronic form. The homebuyers, the homebuilder and other parties to the transaction execute all documents using e-signatures. The title company then transmits the electronic deed and the mortgage to the county recorder. In turn, the county recorder verifies the deed and mortgage and collects its fee by electronic funds transfer. The mortgage and the deed are instantaneously available on the county recorder's internet site for public search. Later, the title company issues its title policy, also in electronic form. Even later, the online lender sells the mortgage loan and transmits the electronic documents electronically to the mortgage loan purchaser. The mortgage loan purchaser transfers the servicing rights for the loan to a servicing company that also receives all closing documents electronically. The entire transaction can take place in as little as three hours.
How do E-SIGN and UETA affect the transaction? Although technology makes the transaction technically possible, E-SIGN and UETA reassure all parties to the transaction that the electronic transaction is legally enforceable. The purpose of this white paper is to summarize the key provisions of UETA and E-SIGN.
Index
Published by Ohio REALTORS's Legal Services Group, October, 2000