Compliance Concerns Unwarranted

Electronic signature technology has been quickly gaining steam throughout the U.S. real estate community, and has now arrived in earnest in Massachusetts. Electronic signature software lets you send legally binding documents and get signatures anytime, anywhere from any Internet-connected device. It’s mostly used in Massachusetts on Offers and Purchase and Sale Agreements. I’ve been using DocuSign, and with a little learning curve, it’s been fantastic.

Realtors and attorneys who use electronic signature software can simply email encrypted contracts to their clients for signatures, rather than deal with travel, signing 4 original copies, and coordinating all the signatures. It’s especially helpful for out of state clients.

The Massachusetts real estate industry, traditionally conservative and slower to adopt new technology, has been lagging behind more progressive states such as California when it comes to adopting electronic signature technology. Plus, it hasn’t helped that technologically challenged attorneys are often involved in the drafting of the purchase and sale agreement.

In my informal survey of Realtors, the biggest questions were (1) are electronically signed contracts legal and valid, (2) how does it work: and (3) will lenders accept them?

Are Electronic Signatures Valid For Massachusetts Real Estate Contracts?

The answer is yes. Under the Massachusetts Uniform Electronic Transactions Act (UETA), real estate contracts which are electronically signed in compliance with the law are legal and valid.

Electronic signature legislation was adopted over 10 years ago. In 2000, Congress enacted the E-SIGN law which validates certain contracts in electronic form and electronic signatures across the country. In 2004, Massachusetts adopted its UETA, codified in Mass. General Laws Chapter 100G, which is essentially adopts and updates the federal E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA provides, simply, that “In a legal proceeding, evidence of a record or signature may not be excluded solely because it is in electronic form.”

For offers and purchase and sale agreements, I have formulated the following rider provision to ensure electronic signature validity and enforceability. Feel free to use it.

This Agreement may be executed by and through electronic signature technology which is in compliance with Massachusetts law governing electronic signatures, including but not limited to, DocuSign®.  Electronic signatures shall be considered as valid and binding as original, wet signatures.  Signatures, originally signed by hand, but transmitted via e-mail or fax shall also be deemed valid and binding original signatures.

How Does It Work?

There are several electronic signature systems out there, including EchoSign, eOriginal, and DocuSign, which I use. All three providers warrant full compliance with federal E-SIGN and state UETA law and their European counterparts.

Since I’ve been using DocuSign, here is a quick video overview how it works.

As the individual requesting that a document be DocuSigned, you control who signs by providing the signer’s email address and other contact information. The document is routed to the signer’s email with a request to sign. DocuSign records the signer’s IP address and a time stamp of the signing activity. In addition, a signer can opt to provide geo-location information at the time of signing. If you require deeper levels of identity management, DocuSign offers additional authentication options, including: access code, knowledge-based ID check and biometric phone identification, among others.

As you can see, in many respects, an electronically signed contract is more secure and less susceptible to fraud and forgery than a traditional “wet” signature.

Are Lenders Accepting Electronically Signed Contracts?

Most are now. In fact, starting in 2012, FHA and the IRS will formally allow electronic signatures on loan and tax documents. However, I hear that some short sale lenders are still requiring wet signatures.

This is always the problem with adopting new technology. It’s disappointing because electronic signatures have been legal and valid for 10 years now. The law was passed by Congress and now all the states. As more and more agents and attorneys embrace the technology, we will see objections falling by the wayside, just as we did with faxed signatures.

Agents, are you using electronic signatures, and if so, how has it helped your business and clients? Have you run into issues or objections from lenders or attorneys?

_________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney who’s handled over 1,000 closings. Please contact him if you need legal assistance purchasing residential or commercial real estate.

Are Electronic Contracts And E-Signatures On The Way?

Catching my eye this week was a recent New York Times article discussing a New York state court opinion regarding the legal effect of e-mail in real estate contracts.  The ruling reaffirmed that e-mail may carry the same weight as traditional ink on paper contracts.

It made me think about the future of real estate contracts and how they will look. Will the common practice of executing four original purchase and sale agreements be replaced by some type of electronic PDF document with electronic signatures? (I hope so. They are in the West Coast now). Same for the standard Offer to Purchase? What about the stack of disclosures and loan documents signed at closings? (There must be a better way). And mortgages are already being electronically recorded in several Massachusetts counties.

I wonder how closings will be conducted in 2021?

Congress and state legislatures have already laid the groundwork for electronic real estate contracts and e-signatures. In 2000, Congress enacted the E-SIGN law which validated certain contracts in electronic form and electronic signatures. In 2004, Massachusetts adopted the Uniform Electronic Transactions Act (UETA), which is essentially updates the E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA exempts several types of contracts and disclosures (e.g., wills), but not real estate contracts.

Old Traditions & The Statute of Frauds

But old traditions are hard to change, especially when it involves real estate.  As every first year law student learns, Massachusetts real estate contracts are governed by the Statute of Frauds.  This doctrine, originated in old English common law, says that any contract for the sale of real estate must be in writing and “signed by the party to be charged therewith.”  One can make a compelling argument that secured electronic contracts and signatures serve the purpose of the Statute of Frauds by providing some objective evidence, other than word of mouth, that there really has been a binding deal.

I haven’t found any cases dealing with the interplay between the UETA and the Statute of Frauds.  And there’s something about that “wet” ink signature on real paper that gives people security and comfort.  The same is true for our beloved Greater Boston Real Estate Board standard form Offer and P&S.  We’ll have to see how the issue plays out in the courts.

But if you can purchase a Ferrari online through E-Bay, why can’t you buy a home using a secure electronic contract?  How do you think technology will affect real estate in the future? What would you like to see change in the industry?

After months in the making, I am very pleased to announce the roll-out of TitleHub Closing Services, LLC, a cutting-edge closing settlement service that uniquely provides a full platform of legal and technology-based services. TitleHub’s mission is to transform the convoluted real estate closing process into an easy, customer-focused and technologically enhanced experience. In collaboration with my colleague Marc Canner, Esq., we have created a company that we believe will serve as the model for the next generation of residential real estate title and closing services.

Buyers, sellers, realtor and lenders will “stay informed” and “stay connected” to their transactions through:

• Our innovative, content-packed website (www.titlehub.com) which serves as a great informational resource.
• Our “E-Closings” system. This is a secure on-line document management system that allows borrowers and real estate professionals unlimited real-time access to obtain status updates of their deals and the ability to upload and download key transactional documents (recorded condominium documents, executed Purchase and Sale Agreement, Good Faith Estimate, HUD-1 Settlement Statement, etc). Click here for more information.
• Exclusive partnership with the Massachusetts Real Estate Law Blog.
• Social media interaction. Check us out on Facebook, Twitter, Linked In and Active Rain.
• Seminar Series; We offer topical seminars to realtors and lenders to help them stay current with the complicated real estate legal landscape as well as seminars to learn new marketing, blogging, and social media techniques.
• Paperless Solutions. We do have the ability to electronically record deeds and mortgages at registry of deeds which offer the service. In the future, we hope to be at the forefront of true e-closing paperless transactions, once there is broader lender and regulatory acceptance.

If you are a realtor or mortgage professional interested in TitleHub’s platform, please contact us at info@titlehub.com, and we’ll give you a demonstration.

The TitleHub Leadership Team
Marc E. Canner, Esq., President/CEO
Richard D. Vetstein, Esq., Vice President and Director of Marketing
Patrick T. Maddigan, Esq., Director of Operations & Business Development

In the spirit of the New Year, let’s look back at the top legal issues of the past year and peer into the crystal ball for a glimpse at 2010.

Top 5 Posts For 2009

#1.  The Catch-22 Impact of New Fannie Mae Condominium Regulations. In January, Fannie Mae was the first government agency to drop a big bucket of cold water on condominium lending underwriting practices which some say contributed to the condominium market meltdown. FHA and others would follow later in the year. The new guidelines had condominium developers and associations, buyers and sellers in a tizzy, as Fannie Mae imposed much tougher pre-sale requirements, condominium financial guidelines and the imposition of unit owner HO-6 insurance policies, among other requirements.

#2.  New FHA Condominium Lending Guidelines Sure To Slow Financing and Chill Sales. The Federal Housing Administration (FHA) followed Fannie’s lead in tightening condominium lending requirements. Originally proposed over the summer, FHA delayed implementation of the new guidelines until earlier in the month and watered down some of the most stringent requirements, after major lenders and community association groups complained.

#3.  There’s Nothing Standard About The Massachusetts Standard Purchase and Sale Agreement. Great to see a post about buying a new home ranking so highly. An indicator of the recovery of the Massachusetts real estate market perhaps? Check out this post for the ins and outs of the very seller friendly standard form P&S and how to level the playing field if you are a buyer.

#4.  Massachusetts Land Court Reaffirms Controversial Ibanez Decision Invalidating Thousands of Foreclosures. If you were following the foreclosure mess, you couldn’t have missed this judicial bomb dropped by Massachusetts Land Court Judge Keith Long. The so-called Ibanez ruling invalidated thousands of foreclosures across the state because the lenders did not record their paperwork up to date at the registries of deeds. Lenders have appealed the ruling, but hundreds of foreclosure titles remain unmarketable in the wake of this controversial decision. More to come in 2010.

#5.  Short Sales Get Boost From New Obama Treasury Guidelines. On December 1, the Obama administration set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed.

Honorable Mention. I would be remiss if I didn’t mention the new RESPA guidelines and the new Good Faith Estimate and HUD-1 Settlement Statement which go into effect Jan. 1, 2010.

2010 — The Year We Rebound

The Massachusetts Real Estate and Mortgage Market

All signs are pointing to a real estate rebound for the Bay State in 2010, with home and condominium sales surging over 50% from last year in November. I have definitely seen an uptick in new purchases on my end and we are preparing for a busy 2010. Along with good news from the real estate market, however, comes higher interest rates as the bond market reacts to positive news. My friend mortgage consultant Brian Cavanaugh at SmarterBorrowing.com does a good weekly mortgage market update and is presently advising borrowers to lock into current rates as he predicts rates will rise in 2010 to close to 6% for a 30 year fixed. Of course, when rates go up, buying power goes down, thereby cooling the market a bit.

Regulatory

Hopefully we’ve seen the end of increased regulation of the condominium market from the government giants. Let’s toast that they can let the market take its course with the new guidelines in effect.

Stimulus/Home Buyer Credit

As the economy continues to recover, you can probably bet that the Obama administration is going to let up on the stimulus/credit throttle for 2010. So take advantage of all the credits available now, because this is probably the last you will see of them for awhile.

Housing

On the housing front, Massachusetts builders are reportedly foregoing McMansions in favor of  the more affordable middle market of homes in the $400,000 to $600,000 price range. Finally!

Technology

Lastly, technology, the internet and social media will play an even bigger role in how realtors, lenders and real estate attorneys do business. The National Association of Realtors says that 87% of home buyers use the Internet to search for homes. I tell all my Realtor friends they must have a strong Internet presence and to take advantage of blogging, social media and Active Rain to boost their online presence.

For attorneys, in 2009 we saw the tip of the iceberg for electronic recordings and closings as well as online transaction management. Our office just set up an online transaction management system where buyers, sellers, loan officers and realtors can view the status of the loan whenever they want through a secure online portal. It’s a fantastic tool. While electronic closings are a way’s away from gaining the necessary critical mass of lender acceptance, many Massachusetts registries of deeds are now e-recording, and that will continue to rise. The next decade will certainly bring electronic closings and paperless transactions into the norm.

Well, let’s clink our glasses to a very happy, healthy and fruitful New Year!

New, sweeping changes regulating how lenders, closing attorneys and title companies disclose loan and closing costs are set to go into effect January 1, 2010. The new regulations are part of a long awaited reform to the 30 year old Real Estate Settlement Practices Act known as RESPA aimed at providing greater transparency and fostering better consumer choice in loan and closing costs. The changes are so significant that HUD recently took the unusual step of giving lenders a 120 day reprieve in enforcing the new regulations.

The major components of the new RESPA reform are the new and substantially revised Good Faith Estimate (GFE), in which lenders disclose loan and closing costs to borrowers, and the HUD-1 Settlement Statement, which is a detailed financial breakdown of the entire real estate transaction signed at closing.

Highlights of the new changes include:

• Borrowers must receive a standard GFE disclosing key loan terms, including the loan’s terms; whether the interest rate is fixed or otherwise; any prepayment penalties and/or balloon payments; and total closing costs.
• Lenders must provide borrowers with a standard origination charge for the loan which must include all points, appraisal, credit, and application fees, administrative, lender inspection, wire, and document preparation fees
• Lenders have the option of providing borrowers with a list of approved service providers such as closing attorneys and title insurance companies.
• A tolerance range has been specified for various categories of loan/closing costs to prevent unnecessary escalation of promised vs. actual charges.
  • Fees quoted for lender origination charge cannot change.
  • Fees for title and closing costs where the lender selects the provider or where the borrower selects the provider from the lender’s approved list cannot change by more than 10%.
  • Fees that borrowers can shop for themselves can increase (or decrease) by any amount.

• The final page of the GFE contains worksheet-like charges to compare different loans and terms that the borrower can use to shop pricing.
• Controversial lender payments to mortgage brokers, known as yield-spread premiums, must be disclosed in a standard manner.
• The charges quoted on the GFE are then carried over to the HUD-1 Settlement Statement to ensure that the prescribed tolerances are met.

Here is a link to the new Good Faith Estimate (GFE) form and a link to the new HUD-1 Settlement Statement form.  The most recent FAQ from HUD (last updated 1.28.10) can be found here.

I think that overall the changes will provide consumers with greater disclosure and transparency of the myriad loan closing fees and costs in a typical real estate purchase.  It also creates an incentive for lenders to assemble a competitively priced team of preferred settlement service providers, so it can guarantee to its customers that the price of the preferred vendors’ settlement services will never increase by more than 10% at closing.  If borrowers aren’t happy with that, they are free to shop and find a better deal themselves.

I plan to do a series of upcoming posts on this important RESPA reform, highlighting the salient sections of the new GFE and HUD-1. As always, contact Richard Vetstein with any questions.

Please read my second post in this series, New RESPA Rules 2010: Disclosure of Settlement Services, Attorneys Fees and Title Insurance.

For all the posts in the RESPA series, click here.

An excited young couple about to close on their first home walk into into the closing attorney’s office. The day before they received via secure email all of the loan documents to review and approve with their personal attorney. The closing attorney arrives without any paper, armed only with a laptop attached to a digital signature pad. The sellers are not present as they have already signed the deed and other documents electronically the day before over the secure electronic closing system. The couple quickly review the closing documents on the attorneys’ laptop, clicking an “I Agree” button acknowledging receipt and review of each document. The couple sign the digital signature pad, and the captured signatures are automatically applied to all of the signature blocks of the documents. The closing attorney electronically notarizes all documents requiring witnessing or notarization. The closing is over in 15 minutes, and the couple walks out with a CD-ROM containing all the signed closing documents and the keys to their new home. The closing attorney then electronically records the deed and mortgage with the registry of deeds, funds the loan, and makes all of the disbursements. The executed loan documents are then electronically transmitted to the lender and digitally archived.

This is not an imaginary scenario. Electronic closings (e-closings) are happening now, and they are the future of real estate conveyancing. I believe that electronic closings will change the way lenders, title companies and closing attorneys do business.

The advantages of an e-closing system are numerous and include:

• More convenient and efficient closing process for home buyers and sellers.
• Automated delivery of electronically signed loan documents directly to post closing – eliminating costs and time. Fund the loans faster, in as little as 48 hours.
• Drastically improve the efficiency of real estate transactions with reduced contract-to-closing times.
• The Green Factor: Eliminates thousands of paper documents. Buyers receive the entire signed closing package on CD.
• Reduce shipping and closing costs.

Electronic closings are very slowly moving into Massachusetts. (Attorneys, who must conduct most real estate closings in Massachusetts, are notorious late adopters of new technology). Since July, without much fanfare, the Middlesex Registry of Deeds in Cambridge, Hampden County Registry in Springfield, and Plymouth Registry of Deeds have adopted electronic recording capabilities. Hopefully, the other registries follow suit.

TitleHub Closing Services LLC, in Massachusetts, is on the cutting edge of e-closing technology.

Electronic closings are a great selling point to customers mortgage lenders, banks and credit unions. Here is a recent article about a credit union in Michigan successfully offering electronic closings.