Electronic Signatures – Not Groundbreaking but Great all the Same

Why Use Electronic Signatures?

1 – It’s secure

2 – It’s easy

3 – It saves time and money

4 – It’s environmentally sound – instead of driving 30+ miles to meet clients, I can just email them. Think about it – by using electronic signatures in the past few weeks, I have saved about 150 miles of driving time. That’s green, right?

5- DocuSign listens to its customers.

I expect and hope that will change in light of this announcement last week and the subsequent announcement of the NAR’s partnership with DocuSign to give Realtor members discounts on the Docusign service.

But … what is groundbreaking is the fact that very few Realtors in Charlottesville, to my knowledge, have implemented the use of electronic signatures.

What is frustrating is the lack of knowledge about electronic signatures’ validity. One lender in particular has a policy against electronic signatures, despite the existence of the ESIGN Act of 2000.

Here’s what happened:

Rather than drive around Charlottesville meeting one buyer at work on the south side of town, the other buyer on the north side of town or both of them together after work at another location, I simply emailed them the contract, they clicked the places they needed to sign and initial and they were done.

Easy, right?

I sent the lender the Contract, only to have the underwriter reject the contract because we used electronic signatures. I asked, “Is this (your bank’s) policy?” To which they responded, “no, it’s FHA policy.”

When presented with evidence that in fact, it’s not FHA policy, they relented and acknowledged that it is (their bank’s) policy.

So … we had to re-do the Contract. This is the email I sent to my clients: : (bolding added)

2 – Despite the validity and fact that electronic signatures are legal … rather than fight the underwriter, it’s simpler to re-do this part of the contract. I am attaching the contract that needs your signatures (with dates the same as on the ratified copy, also attached). Can you print/scan/email to me or do you want me to meet you somewhere tomorrow?

Update: One more thing has to be signed, and, while the lender accepts the appraiser’s signature electronically, nobody else’s is apparently acceptable. So … we have to “get them to sign it, fax it to me, then I’ll email it to the other agent … who will print it out, take it to the seller and then scan it and email it to me.”

Electronics signatures mean: email, click, done.

Lessons learned:

1 – Use a local lender.

2 – Have a backup plan.

3 – Never assume the other party is on the same page as you are.

4 – Just the FAQ’s – Electronic Signatures for Real Estate – courtesy of DocuSign

Now, I’m not an attorney, but …

Per the Code of the Commonwealth of Virginia:

§59.1-485. Legal recognition of electronic records, electronic signatures, and electronic contracts.
(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.
(b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.
(c) If a law requires a record to be in writing, an electronic record satisfies the law.
(d) If a law requires a signature, or provides for certain consequences in the absence of a signature, an electronic signature satisfies the law. (2000, c. 995.)

Update 18 January 2010: The challenges with electronic signatures continue.

Contrary to some opinions, FHA is supposed to accept electronic signatures:

Progress is being made

The FHA’s response to the changing climate of mortgage insurance resulted from the surge in volume of electronic documents that were finding their way into insurance case binders. In January 2009, the operational arm of the Administration’s single-family home loan group embarked on an effort to update systems and procedures, including guidelines for processing electronic loan packages, complete with electronic promissory notes (i.e. e-mortgages). The effort is receiving “fast track” treatment and will be released during the second half of 2009 at the earliest. DocuSign, both on its own and through its participation in Electronic Signature and Records Association (ESRA) has been at the forefront of this effort and moving it forward.

FHA does accept DocuSign today

As the real estate industry’s leading provider of electronic contract execution, DocuSign has also sought to establish a clear distinction between an electronic mortgage – with process requirements and controls that must be in place at closing – and an electronically signed real estate contract, seeking appropriate treatment of electronically signed real estate contracts by lenders, the FHA, and other “downstream” recipients of these 100% valid and enforceable agreements. Largely as a result of our early efforts, the FHA in January 2009 affirmed its willingness to accept electronic signatures and instructed its Home Ownership Centers not to reject case binders containing electronically signed real estate contracts.
Challenges remain

This FHA policy has yet to be communicated to lenders in writing, as the FHA prefers that the e-mortgage guidelines and electronic signature guidelines be released concurrently to avoid further confusion. However, FHA’s failure to communicate a clear policy about accepting paper case binders that include electronically signed documents, particularly paper copies of electronically signed real estate contracts, has perpetuated confusion among realtors, mortgage brokers and lenders. The compliance departments at major lenders such as Wells Fargo and Countrywide (now Bank of America) have taken steps to better understand the FHA’s position. These lenders have recently adopted cautious, temporary policies that have flagged mortgage applications that included electronically signed documents. We expect these policies to be reversed or relaxed very soon, but in the meantime much confusion remains.

Frequently Asked Questions

My broker has never seen one of these signatures before. How do we know it is “real”?
Over the past five years, hundreds of thousands of real estate documents have been electronically signed by buyers and sellers using the DocuSign electronic contract execution platform, and not one of these transactions has failed for fraud or unenforceability arising from use of the electronic signature.

DocuSign is used by real estate agents in all 50 states to allow parties to real estate contracts to sign online, without paper. The DocuSign system has been identified as the electronic signature of choice by the California Association of Realtors since 2005 and is branded as “Zipform Esign” for users of the Zipform real estate form network in 34 states. More recently DocuSign has partnered with Reveal Systems to provide electronic signing of real estate forms in 10 additional states. Approximately 750,000 real estate agents and brokers have access to DocuSign for electronic execution of over 20,000 different kinds of forms used in real estate transactions.

DocuSign is also used by hundreds of mortgage brokers and correspondent lenders to execute front-end RESPA disclosures online. These include TIL, GFE, and all state-required disclosures.

My mortgage broker says the lender won’t accept electronic signatures

A few lenders have some policies in place that restrict electronically signed documents, but not all documents in a mortgage application file are the same. There is a difference between a mortgage closing document (such as an electronic note) and a supporting document (such as a real estate contract, addendum or disclosure). Supporting documents represent contracts between consenting parties that have already been consummated and are not part of the closing process. It is unusual for a lender to interfere with a real estate transaction by asking for it to be re-executed. Ask the broker or lender to clarify their position and to make sure they have all the information they need to make that assertion.

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1 Comment

  1. An Bui, DocuSign Social Media January 19, 2010 at 11:31

    Jim,

    It was so great to connect with you in real life as well as online! Thanks so much for your efforts in educating others about electronic signature, especially DocuSign, and serving as such a strong advocate. Please continue to let me know about who is and isn’t accepting electronic signature!

    Best,
    An

    Reply

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