Paperless Real Estate Transaction Basics
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Summer 2004, Volume 3, Number 3
Paperless Real Estate Transaction Basics
by Michael J. Agen, Branch Manager and Counsel, Springfield
The infrastructure for the paperless real estate transaction in Massachusetts exists. The task now presenting itself to Massachusetts real estate lawyers, as it always seems to be, is to coordinate the technical, legal and business components of the paperless transaction in a manner that serves the consumer/client, lenders and realtors.
As with all changes in the field of real estate transactions, real estate attorneys and their staff will be expected to implement these changes in an efficient and seamless manner. Luckily, to quote Western New England College School of Law Professor Samuel Stonefield, "Paperless and paper recordings will live in peaceful coexistence for the foreseeable future." [Opening remarks at the May 7, 2004, Stewart Title, Hampden County Registry of Deeds Electronic Recording Seminar]
This article attempts to provide Stewart agents with a working knowledge of the practical, technical and legal framework that they can use in adapting to the "paperless" environment. We will address E-transaction terms, G.L.c. 11OG and the template for electronic recording of real property transactions being implemented by Stewart in other jurisdictions.
|UETA||Uniform Electronic Transactions Act, G.L.c. 110G. Added by Chapter 133 of the Acts of 2003, effective Feb. 24, 2004.|
|E-Sign||Electronic Signatures in Global and National Commerce Act, 15 USC 7001 et seq.|
|Wet Document||Paper document executed in the traditional pen to paper manner.|
|Electronic Document||A document created and executed in a completely electronic environment. Also known as a record.|
|Hashing||An electronic security procedure that ensures documents are not tampered with during transmission. UETA G.L.c. 11OG §2 defines it as a security procedure.|
|Level I Recording||Paper documents are executed in the traditional "wet" fashion, scanned and emailed for recording.|
|Level II Recording||Scanned documents are sent to the Registry with indexing information electronically attached for automatic indexing by the Registry computer system.|
|Level III Recording||Electronic documents with indexing information are recorded.|
Uniform Electronic Transactions Act, G.L.c. 110G
Though the drafters of the Uniform Electronic Transactions Act G.L.c. 110G (hereinafter the Act) and the General Court recognize the utility and efficiency of conducting transactions electronically, they were also aware it may not be applicable to all situations and parties, and the application of the Act can only be imposed upon the parties of a transaction when all agree to the application of the Act to their transaction. This agreement to conduct a transaction by electronic means, in absence of an express agreement, can be determined by the conduct of the parties and the circumstances of the transaction. G.L.c. 110G §5 (a), (b). Parties, once they have agreed to participate in an electronic transaction, are not obligated to continue this format for other transactions and therefore may refuse to conduct other transactions electronically. G.L.c. 110G §5 (c).
The framework is present in the Act for parties to move ahead. The use of the Act clearly and simply substitutes electronic records and signatures for "wet" signatures and writings. G.L.c. 110G §7 (c),(d). Electronic documents and signatures may not be denied legal effect or enforceability solely based upon their electronic nature. G.L.c. 110G §7 (a), (b).
Though the Act is intended to give parties an electronic option certain carveouts were made recognizing existing bodies of laws and procedures. The Act therefore subordinates itself to any existing laws or regulations relating to the following (G.L.c. 110G §3 i-vii):
(i) a statute, regulation, or other rule of law governing the creation and execution of wills, codicils, or testamentary trusts;
(ii) a state statute, regulation, or other rule of law governing adoption, divorce or other matters of family law;
(iii) court orders or notices, or official court documents, including briefs, pleadings and other writings, required to be executed in connection with court proceedings;
(iv) a statute, regulation, or other rule of law governing any notice of the cancellation or termination of utility services, including water, heat and power; or of the default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual;
(v) a statute, regulation, or other rule of law governing the cancellation or termination of health insurance or benefits or life insurance benefits, excluding annuities;
(vi) a statute, regulation, or other rule of law governing recall of a product, or material failure of a product, that risks endangering health or safety; or
(vii) any document, required by a statute, regulation, or other rule of law governing, to accompany any transportation or handling of hazardous materials, pesticides or other toxic or dangerous materials.
Among the usual definitions found in many uniform acts, such as person, government agency, state, contract and agreement, are those set forth below. Because of these far-reaching definitions, the Act allows for a multitude of electronic formats so long as a viable electronic security feature is in place.
Electronic - relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities.
Electronic agent - a record created, generated, sent, communicated, received, or stored by electronic means.
Electronic signature - an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.
Record - information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
Security procedure - a procedure employed for the purpose of verifying that an electronic signature, record, or performance is that of a specific person or for detecting changes or errors in the information in an electronic record. The term includes a procedure that requires the use of algorithms or other codes, identifying words or numbers, encryption, or callback or other acknowledgement procedures.
Of course, the most basic security feature is a valid execution procedure including acknowledgement and notarization. Though Massachusetts does not have a pure electronic notarization statute, the Act allows for notarization and acknowledgement if the electronic signature of the party authorized to perform those acts "attached to or logically associated with the signature or record." G.L.c. 110G §11. With the record's validity and enforceability based upon electronic signatures, the security of the document must be maintained during transmission. Parties utilizing an electronic format must adhere to a security procedure that assures not only the validity of the electronic signature, but that the record was not altered during transmission. G.L.c. 110G §§9 & 10. In the event of an error or change during a transmission, where a previously agreed upon security procedure has not been conformed to, the conforming party may avoid the changes or electronic errors in the record unilaterally. G.L.c. 110G §10 (1).
Records, as valid as they may be, must be delivered and received. The incidence of delivery and receipt in this new non-paper environment are defined by the Act. Records are deemed sent when properly addressed to a system from which the recipient can retrieve the electronic record in a form and manner that can be processed. The system it enters must not be under the control of the sender but under the control of the recipient. G.L.c. 110G §§15 (a) (1), (2), (3). This record is then deemed received when it enters such a system in a form capable of being retrieved. G.L.c. 110G §§15 (b) (1) and (2). Retention of these records, as with paper documents, is of paramount importance. A sender of an electronic record cannot enforce the terms of an agreement based upon a record if the sender in any way inhibited the recipient from storing or printing that record. G.L.c. 110G §8 (a), (c).
- The use of the Act is optional.
- Parties are not obligated to continued use of the electronic transaction format.
- Security procedures must be in place assuring the validity of signatures and that there is no tampering during transmission.
- Records must be able to be printed and stored.
- Delivery and receipt are clearly defined.
Template for the Recording of Electronic Real Estate Transactions
Stewart Title Guaranty Company's sister company Landata Systems has embarked on an ambitious project to bring the Washington DC land records into the electronic realm. The experiences gained in this and other jurisdictions are valuable to Massachusetts agents since the recording offices use systems and procedures very similar to those used in Massachusetts. Key to this project was the eventual ability to have Level II recordings. The Level II recordings, as set forth above, not only allow for emailed images of documents to be recorded, but these documents are pre-indexed for the registry, greatly decreasing the registry's workload. Central to this process is the need for a reliable electronic vault and the need for instant communication through that vault to all parties.
The transaction begins in the settlement office. The documents (or records), no matter if they are "wet" or electronic, must be executed in a fashion that allows for the verification of the identity of the parties and that the executing parties are aware of what they are executing. In other words, the closing still takes place under the direction and control of the settlement agent. In the case of a "wet document" that document is scanned using conventional scanners, converted into an image file and saved on the settlement agent's computer system awaiting transmission to the electronic vault. Using software provided by the electronic vault company, the images of the documents for recording are transmitted. Communication to the electronic vault is through a secure link known as a virtual private network. The electronic vault is only open to settlement agents that are pre-qualified and are verified upon the entry of the documents. The documents sent in are coded, sometimes by a technique known as hashing, that allows the detection of tampering.
The use of the electronic vault, rather than individual submissions directly by settlement agents, 1) lessens the number of parties the registry has to police and qualify, 2) places the duty upon the electronic vault owner to qualify users and, in some instances, 3) allows parties to escrow executed documents. The role of the electronic vault has evolved beyond its initial function as only a record repository. It is now contemplated that in most jurisdictions the electronic vault will also verify recording fees, index the document in the manner directed by the registry and check for conformance with registry recording standards advising the settlement agent of any problems, all before transmitting documents to the registry.
After the electronic vault is directed by the settlement agent to transmit the documents on for recording, which may or may not be at the time they are submitted to the e-vault by the settlement agent, the documents are transmitted to the registry. The registry then verifies the validity of the document and the party transmitting either accepts the document or rejects it, transmitting a reason for the rejection to the vault and settlement agent. If the document is approved for recording, the settlement agent is informed of the recording and is sent an "e-receipt."
Attorney Michael J. Agen has served as counsel and manager in Massachusetts and Vermont, and New England System Department Manager for national and regional title insurance underwriters. He has lectured and written not only on title insurance and Massachusetts real property law, but also on e-closings and title closing software. Atty. Agen joined Stewart Title Guaranty Company in 2003, opening its Springfield Massachusetts Branch with Nancy M. Brady, Agency Manager.