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  • Fannie Mae Updates Selling Guide

    Lending

    On October 31, Fannie Mae issued Announcement SEL-2017-09, highlighting recent updates to its Selling Guide, that generally affirm the ability to conduct activity using electronic records.  Among other things, the update (i) confirms that sellers and servicers are authorized to originate, service, and modify loans using electronic records; (ii) requires that validation and security measures be put in place for systems generating electronic records; (iii) specifies that recorded mortgages and deeds of trust are not required to be maintained in paper form; and (iv) clarifies that all electronic signatures must comply with ESIGN, the Uniform Electronic Transactions Act (UETA), and other applicable laws. The updates are effective immediately.

    Additional changes address the (i) introduction of Fannie Mae’s Servicing Execution Tool and Servicing Marketplace, which are designed to improve transfers of servicing; (ii) clarification that property owned by inter vivos revocable trusts qualify as eligible collateral; and (iii) updates to policies related to mortgage debts paid by parties other than the borrower.

    Lending Fannie Mae Electronic Signatures Mortgages UETA ESIGN

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  • District Court Denies Summary Judgement to Both Parties, Cites Issue of Material Fact Concerning Prepopulated Electronic Signature

    Courts

    On October 18, a federal judge in the U.S. District Court for the District of South Carolina denied summary judgment to both parties because there was a genuine issue of material fact regarding whether a “meaningful offer” of underinsured motorist coverage (UIM) was made. The insured’s electronic signature on the UIM form would indicate that the defendant made a “meaningful offer” of UIM coverage, as required under South Carolina law, and such coverage was rejected. The dispute however, in this case was about whether the electronic signature was prepopulated by the defendant.

    Plaintiff purchased an auto insurance policy from the defendant online, and the coverage did not include UIM coverage. Plaintiff argued that he never signed the UIM coverage provision and that instead, his signature was prepopulated by the defendant’s website. The plaintiff argued that his prepopulated signature did not satisfy the requirements for a meaningful offer of UIM coverage. The defendant rebutted by stating that prepopulating portions of the UIM form is compatible with providing a meaningful offer of UIM coverage. The court was “disinclined to agree” with the defendant’s argument that a “prepopulated signature that appears on an insurance policy before the insured reads through and signals affirmative consent. . .fulfills” the UIM requirements. After reviewing the record, which was limited to screenshots produced by the plaintiff (as the defendant’s attempt to proffer additional system-based evidence was refused by the court because the defendant previously objected to producing it during discovery), the court concluded that it could not grant summary judgment to either party because of the factual dispute regarding whether the plaintiff signed the UIM provision.

    Courts Litigation Electronic Signatures Insurance

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  • Fannie Mae and Freddie Mac Update Servicing Guides

    Lending

    On October 11, Fannie Mae and Freddie Mac announced updates to their respective Servicing Guides.

    Fannie Mae. Servicing Guide Announcement SVC-2017-09 highlights recent updates to the Servicing Guide, including topics related to the management of electronic transactions such as: (i) confirmation that sellers and servicers may originate, service, and modify loans using electronic records (electronic promissory notes require special approval); (ii) streamlined language clarifying requirements for the accuracy of information in electronic records; (iii) specification that paper records are not required for recorded mortgages and deeds of trust; (iv) clarification that all electronic signatures must comply with ESIGN, UETA, and other applicable laws; and (v) the removal of requirements for document custodians from the Servicing Guide that were duplicative of requirements set forth in Fannie Mae’s Requirements for Document Custodians. Additional updates address changes made to the reimbursement of foreclosure sale publication costs for costs incurred on or after January 1, 2018, and specific guidance for servicers pertaining to mortgage liens (to be implemented by December 1, 2017).

    Freddie Mac. Freddie Mac issued Bulletin 2017-22 announcing servicing updates concerning (i) modifications to imminent default evaluation and process requirements (jointly developed with Fannie Mae) that will take effect July 1, 2018; and (ii) provisions under the Servicemembers Civil Relief Act (SCRA) related to compliance time frames for servicers when responding to, or submitting requests for, interest rate reductions, along with updates that take effect February 1, 2018, concerning Guide Exhibit 71 used by servicers to report eligible SCRA interest rate subsidized loans. The updates also eliminate the manual property condition certificate process and modify time frame requirements for cancelling property insurance policies on real estate owned properties.

    Lending Agency Rule-Making & Guidance Fannie Mae Freddie Mac Mortgage Servicing Electronic Signatures ESIGN UETA SCRA

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  • Texas Appeals Court Cites Khoury, Dismisses Trial Court’s Summary Judgment Under UETA

    Courts

    On October 3, a three-judge panel of a Texas Court of Appeals reversed and remanded, while affirming in part, a trial court’s decision concerning an alleged breach of contract over a $230 million sale agreement. On appeal were three issues, including a challenge to the grounds on which the trial court granted summary judgement under the Uniform Electronic Transactions Act (UETA). The trial court concluded that the “parties did not agree to conduct business electronically and that the alleged contract did not contain a valid electronic signature.” But the panel reversed the decision, holding that an agreement between parties to conduct transactions by electronic means “need not be explicit” under UETA, and finding that the parties’ email negotiations constituted “at least some evidence that the parties agreed to conduct some of their transactions electronically.” and The panel also cited their earlier decision in Khoury v. Tomlinson, that was previously discussed in InfoBytes, to address the question of whether the emails between the two parties were signed electronically. Khoury ruled that an email satisfied the writing requirement because it was an electronic record, and that the header, which included a “from” field constituted as a signature because that field served the same “authenticating function” as a signature block. Consequently, because there was “at least some evidence that the relevant emails were signed as defined in UETA,” the trial court in this matter erred in granting summary judgment.

    Further, because the panel found that there still remain questions regarding whether the parties actually formed an agreement concerning the sale of assets, the panel stated they were unable to determine “as a matter of law, under the particular facts of this case, whether such a contract is illusory.” Thus, the trial court erred in granting summary judgment on these grounds as well.

    The remainder of the trial court’s judgments were affirmed, and the case was remanded for further proceedings consistent with the opinion.

    Courts Appellate Digital Commerce Electronic Signatures UETA

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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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