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  • Mortgage Closing Relies Exclusively on Electronic Loan Documents

    FinTech

    On August 9, a Wall Street Journal article reported the first mortgage refinance conducted entirely through a remote electronic online closing using electronic signatures. The loan will soon be electronically sold to Freddie Mac. While electronic mortgages are not new, this was the first closing that did not require a notary public be physically present, according to the article. Using an online notary service, the borrowers answered a series of questions to authenticate their identities, and without the need to “wet sign” any of the documents. Freddie Mac’s Vice President of Single-Family Business Transformation Management, Samuel E. Oliver III, stated that “by having things digitized, a loan would be able to get to the secondary market much more quickly. . . . [M]ortgages could be delivered to an investor in as little as one day—a process that takes a median of 29 days now.”

    As previously covered in InfoBytes, Freddie Mac released a bulletin last September outlining conditions, which allow closing documents to be electronically recorded. Freddie Mac also provides several resources concerning eClosings  and eMortgages on their website.

    Fintech Lending Mortgages Electronic Mortgages Electronic Signatures

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  • Fannie, Freddie to Allow Electronically Recorded Mortgage Copies

    FinTech

    On May 10, Fannie Mae announced it would begin accepting copies of electronically recorded mortgages rather than original wet-signed documents. This follows a prior September 2016 announcement from Freddie Mac, which changed its policy on the electronic recording of paper closing documents.

    Fannie Mae. As set forth in Section A2-5.2-01 of its Servicing Guide, Fannie Mae says that electronic records may be delivered and retained as part of an electronic transaction by the seller/servicer to the servicer, document custodian or Fannie Mae, or by a third party, as long as the methods are compatible with all involved parties. Additionally, the electronic records must be in compliance with the requirements and standards set forth in ESIGN and, when applicable, the Uniform Electronic Transactions Act, as “adopted by the state in which the subject property secures by the mortgage loan associated with the electronic record is located.”

    Freddie Mac. A bulletin released last September updated Sections 1401.14 and 15 of Freddie Mac’s Servicing Guide by removing the requirement that a seller/servicer retain the original paper security instrument signed by the borrower if an electronic copy of the original security instrument is electronically recorded at the recorder’s office, provided the following conditions are met:

    • The seller securely stores along with the other eMortgage documents either (i) “the electronically recorded copy of the original security instrument,” or (ii) “the recorder’s office other form of recording confirmation with the recording information thereon”; and
    • Storage of the original security instrument signed by the borrower is not required by applicable law.

    According to Freddie Mac, “Removing this requirement addresses one of the barriers for eMortgage adoption in the industry, permitting more [m]ortgage file documents to be [e]lectronic and reducing some storage costs for [s]eller/[s]ervicers.”

    Fintech Electronic Signatures Fannie Mae Freddie Mac ESIGN

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  • Sens. Portman, Bennet Introduce Bipartisan Electronic Signature Standards Act

    FinTech

    On May 9, Senators Rob Portman (R-Ohio) and Michael Bennet (D-Colo.) introduced legislation that would make it easier for taxpayers to be represented in disputes with the Internal Revenue Service (IRS). As set forth in a press release issued by Sen. Portman’s office, the Electronic Signature Standards Act (S. 1074) would amend the Internal Revenue Code of 1986 by providing uniform standards for the use of electronic signatures for third-party disclosure authorizations, and thereby would “make it easier, and faster, for professional tax experts to represent taxpayers before the IRS by instituting electronic signature standards for third party disclosure authorization forms.” Notably, the IRS already uses electronic signatures for Form 4506-T (Request for a Transcript of Tax Return), which is commonly used in the mortgage industry. The use of electronic signatures on these forms has allowed the IRS to process over 20 million of these forms a year, and the Electronic Signature Standards Act would extend similar electronic signature requirements to Form 2848 (Power of Attorney and Declaration of Representative) and Form 8821 (Tax Information Authorization). These forms are required before a professional tax expert can begin representing a taxpayer before the IRS. “Taxpayers deserve quick access to the IRS, and this bill makes that access possible,” said Sen. Portman.

    Fintech Electronic Signatures IRS Federal Issues Federal Legislation

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  • Texas Appeals Court Holds Email From: Line to be a Valid Electronic Signature Under State's Uniform Electronic Transactions Act (UETA)

    Courts

    On December 22, in an unpublished decision, a Texas Court of Appeals held that an email exchange constituted an executed contract between two individuals under the state’s enactment of the Uniform Electronic Transactions Act (“UETA”). Khoury v. Tomlinson, No. 01-16-00006-CV (Tex. App. Dec. 22, 2016). The dispute involved an email sent from Appellant to Appellee, which outlined terms of an agreement to repay investment funds. Appellee responded to the email, stating "We are in agreement," but did not type his name or include a signature block at the end of his message. A jury found that an electronic contract was formed by this exchange, but the trial court granted the Appellee’s motion for judgment notwithstanding the verdict on the basis that the electronic contract violated the state statute of frauds. On appeal, the Appellant invoked the UETA, arguing that the email satisfied the writing requirement of the statute of frauds because it was an electronic record and that the header, which included a “From:” field bearing the Appellee’s name, constituted Appellee’s signature because that field serves the same “authenticating function” as a signature block. The appellate court agreed that the email was an electronic record sufficient to satisfy the writing requirement in the statute of frauds.

    Courts Digital Commerce Electronic Signatures UETA Payments

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  • US Court Rejects DocuSign e-Signatures as Method to Provide Digital Authorization

    Courts

    Back in July, the United States bankruptcy court for the Eastern District of California held that under its local rules, an attorney submitting electronically signed documents for filing with the court must maintain an originally signed document in paper form bearing a “wet” signatureIn re Mayfield, No. 16-22134-D-7, 2016 WL 3958982 (U.S. Bankr. Ct. E.D. Cal.).  The United States Trustee (UST) filed a motion for sanctions against a debtor’s attorney who used the an electronic signature platform to have the debtor execute certain documents that were subsequently filed with the court.  The court’s local rules 9004-1(C) and (D) provide that if these documents were executed with a “software-generated electronic signature,” the submitting attorney is required to maintain “an originally signed document in paper form” and produce it upon request by the UST.   When asked by the UST to produce the original signed versions of the documents he filed, the debtor’s attorney was unable to do so.  In response to the motion, the debtor’s attorney argued that the requirements of 9004-1(C) and (D) did not apply because the electronic signatures were manually created by the debtor’s actions taken on the electronic signature platform.  As such, they were not “software-generated electronic signatures” within the meaning of the rule, and under the federal ESIGN Act constituted “original” signatures.

    Ultimately, the court held that: (i) the ESIGN Act was not applicable because of the express exemption for court rules at 15 USC § 7003(b)(1), thereby permitting the court to establish and interpret its own rules with respect to electronic signatures, (ii) the electronic signatures created using the platform were within the meaning of the term “software-generated electronic signature” under the local rules, and (iii) the local rule’s reference to “an originally signed document in paper form” required the attorney to also maintain a copy of the document bearing a “wet ink” signature.  Accordingly, the Court granted the UST’s motion and, as the sanction imposed, required the debtor’s attorney to certify completion of the court’s online e-filing training course.

    Courts Digital Commerce ESIGN Electronic Signatures Sanctions Payments UST

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  • Implementation of New EU Regulation Establishes Uniform Legal Framework for e-Signatures Across All EU Member States

    FinTech

    Recently, the EU adopted a new EU Electronic Signature Regulation 910/2014/EU, which established a new, comprehensive, legal framework for e-signatures, as well as e-identification, e-seals, e-timestamp, e-documents, e-delivery services, and website authentication. The new regulation applies to transactions dating back to July 1, replacing the prior Directive on Electronic Signatures (1999/93/EC). Among other things, the new regulation defines three levels of e-Signatures: (i) e-Signature, (ii) advanced e-Signature, and (iii) qualified e-Signature. “E-Signature” is defined as data in electronic form which are attached to, or logically associated with, other electronic data, which are used by the signatory to sign. “Advanced electronic signature” is defined as uniquely linked to the signatory, capable of identifying the signatory, and created using e-signature creation data that the signatory can, with a high level of confidence, use under his sole control. And finally, a “qualified electronic signature” is defined as an advanced electronic signature created by a qualified electronic signature creation device.

    Notably, and in contrast to previous EU directives on e-signatures, the new regulation is directly applicable in all 28 EU Member States without any requirement that it be formally adopted into national law. Specifically, Article 25 of the New Regulation provides that an electronic signature shall not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures. Rather, a qualified electronic signature in one EU Member State shall now be recognized as a qualified electronic signature in all other Member States.

    Digital Commerce International Electronic Signatures European Union Miscellany

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  • California Court of Appeals Rules on Evidentiary Standard for Attributing an eSignature to the Signer

    FinTech

    On April 22, the California Court of Appeals, Second District, reversed a trial court decision denying a defendant employer’s petition to compel arbitration pursuant an electronically signed arbitration agreement with an employee. Espejo v. S. Cal. Permanente Med. Grp., No. BC562377 (Cal. App. Apr. 22, 2016). In the proceedings below, the employer offered declarations describing its electronic contracting procedures with employees. The procedures described in one of those declarations included an email sent to the plaintiff at the email address he provided, which included a hyperlink to a landing page where he could access his employment agreements for review and execution. After clicking on the link, the employee then had to a log in using unique credentials securely provided to the plaintiff by the employer. Once logged in, the plaintiff was presented various employment agreements (including the agreement containing the arbitration clause) and had to manually type in his name to sign the agreements. Upon signing the agreement, the employer’s system finalized the document by imprinting the date, time, and the IP address from which the plaintiff electronically signed the agreements. The employer’s declarant further stated that the plaintiff’s name could have only been typed into the signature pages of the agreements by someone using the plaintiff’s unique user name and password. In opposition to this evidence, the plaintiff only stated that he did not recall executing the agreement containing the arbitration clause and denied that the employer had met its burden to attribute the signature to him under the state UETA. Due to a procedural issue, the declaration described above was excluded from evidence, and the trial court denied the motion to compel arbitration. On appeal, the appellate court concluded that the trial court erred in excluding the declaration. The court then went on to hold that the employer had properly authenticated the signature on the employment agreements as the plaintiff’s signature, citing the standards for attributing signatures under the state UETA (which may include a demonstration of the efficacy of a security procedure applied to determine the person to which the electronic signature is attributable). The court relied upon the statements in the declaration detailing the security procedures applied by the employer, which showed that only someone using the unique credentials of the plaintiff could have entered his name on the signature line of the agreements, as well as the date, time and IP address stamps associated with the executed agreements. The appellate court contrasted its holding here with another California state court decision, Ruiz v. Moss Bros. Auto Group, Inc. 232 Cal. App. 4th 836 (Cal. App. Dec. 23, 2014), in which the party moving to compel arbitration failed to adequately demonstrate that the electronic signature belonged to the employee. In Ruiz, the employer’s declaration in support of its motion to compel arbitration only stated that the arbitration agreement was “presented to all [] employees” and “each employee is required to log into the company’s HR system, using his or her ‘unique login ID and password,’ to review and sign the employee acknowledgment form.” The court noted the contrast between the conclusory statements offered in Ruiz with the step-by-step declaration offered in this case, which described in detail how the agreement was given to the plaintiff, how he accessed it with his unique credentials, and how only someone using those credentials could have entered the plaintiff’s name into the agreement.

    Electronic Signatures

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  • New York AG Schneiderman Opines on Legality of Electronic Signatures for the Purposes of Online Voter Registration

    FinTech

    This week, New York AG Schneiderman issued an opinion regarding the legality of online voter registration, including the use of electronically affixed handwritten signatures. The opinion is in response to a February 8 letter from Suffolk County seeking the AG’s opinion as to “whether State law permits Suffolk County to implement online voter registration through the use of an electronic signature or whether the signature requirements of N.Y. Election Law § 5-210(5)(d)(xi) require signatures to be handwritten or ‘affixed by hand.’” AG Schneiderman opined that because Election Law § 5-210(5)(d)(xi) does not specifically require a signature written with ink on a voter registration application, the law does not preclude an electronically affixed signature. In accordance with the Election Law, AG Schneiderman commented that the electronic signature must be of a “quality and likeness to a signature written with ink,” and that an applicant completing an online registration application must either (i) print and mail the application to the local board of elections, or have a third party print and mail the application; or (ii) personally appear at the local board of elections.

    State AG Electronic Signatures

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  • Florida Fourth District Court of Appeals Rules in Bank's Favor in Foreclosure Action Based on an eNote

    FinTech

    On April 20, a Florida District Court of Appeals issued an opinion affirming a lower court’s final judgment in favor of a bank (Bank) in a foreclosure action against borrowers who signed a mortgage note electronically (eNote). Rivera v. Wells Fargo Bank, N.A., No. 4D14-2273 (Fla. App. April 20, 2016). In the proceedings below, the Bank had presented a sworn certificate of authentication which articulated, among other things, the Bank’s role as servicer of the eNote for Fannie Mae, and describing the Bank’s practices and systems used for the receipt and storage of authoritative copies of electronic records and for protecting electronic records against alteration. The Bank also provided evidence from the same system records and the records of MERSCORP, Inc., as provided for in the terms of the eNote itself, showing that the eNote was last transferred to Fannie Mae and that the authoritative copy of the eNote was maintained in the Bank’s systems as Fannie Mae’s custodian. On appeal, the borrowers challenged the adequacy of the Bank’s demonstration that the eNote had properly transferred to Fannie Mae, thus challenging the Bank’s standing to enforce the eNote and foreclose the mortgage as Fannie Mae’s authorized representative. Applying the Florida enactment of the Uniform Electronic Transaction Act (UETA) and relying on the evidence provided in the certificate of authentication, the court held that the Bank presented competent evidence proving that Fannie Mae owned the eNote and had authorized the Bank to pursue the foreclosure. The court noted that under the UETA, the person with control of a “transferable record” has the same rights as a holder and went on to hold that the eNote is a "transferable record" within the meaning of the UETA because it is an electronic record that would be a note if it were in writing, and its issuer expressly agreed on its face that it was a transferable record. The court observed that the Bank established that its records system stored the eNote in “such a manner that a single authoritative copy of the e-note exists which is unique, identifiable, and unalterable” and that the “authoritative copy, introduced into evidence by the [B]ank as Fannie Mae's designated custodian, identified Fannie Mae as the entity to which the transferable record was most recently transferred.” The court concluded that because the Bank proved that Fannie Mae had control of the eNote, and that the Bank was Fannie Mae's designated custodian, the Bank had standing to foreclose and affirmed the judgment of the lower court.

    Fannie Mae Electronic Signatures UETA Electronic Records

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  • New York Supreme Court Reverses Lower Court's Ruling in Foreclosure Case; Observes eNote and Transfer History Sufficient under ESIGN

    FinTech

    On April 13, the New York Supreme Court, Appellate Division, Second Department issued an opinion reversing a lower court order dismissing a foreclosure action against a borrower who signed a mortgage note electronically (“eNote”). New York Community Bank v. McClendon, 2016 N.Y. Slip Op. 02790 (N.Y. Supp. April 13, 2016). In the proceedings below, the lower court had granted the borrower’s motion to dismiss the foreclosure complaint for lack of standing, accepting the argument that the plaintiff mortgagee lacked standing because it could not produce a chain of valid assignments of the eNote from the original lender to itself. In opposition to the motion to dismiss, the mortgagee had submitted, among other things, a copy of the eNote and a print out of an electronic record of the transfer history of the eNote (“Transfer History”) showing a chain of transfers from the original lender to itself. The court observed that the eNote qualified as a “Transferable Record” under Section 201 of the Electronic Signatures in Global and National Commerce Act (“ESIGN”) and that a person is in “control” of a Transferable Record if “a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.” Citing the UCC, the court further observed that the holder of the eNote would have standing to foreclose and that any person with “control” of the eNote is its holder. After establishing this legal framework, the court concluded that the Transfer History, together with the eNote, were sufficient to establish that the plaintiff mortgagee had control of the eNote under ESIGN and therefore had standing to foreclose as the holder. According to the court, because these rules governing Transferable Records applied to the eNote, the failure of the plaintiff mortgagee to produce proof of assignment was “irrelevant” and the complaint should not have been dismissed for lack of standing.

    Foreclosure ESIGN Electronic Signatures

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