Key Considerations Regarding Electronic Signatures, Remote Online Notarizations and Electronic Recording in Commercial Real Estate Transactions Amidst COVID-19

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States across the country have taken measures to prevent the spread of COVID-19, including implementing closures of non-essential businesses. The increase of individuals working from home has prompted the commercial real estate industry to search for new protocols for closing real estate transactions in the current climate. Borrowers, buyers, lenders and sellers in commercial real estate transactions must now consider whether alternative methods of electronic execution, notarization and recording are available for their transaction.

Set forth below are several key factors to be considered by parties to a commercial real estate transaction in today’s world.

1. Are electronic signatures permitted?

Every state in the United States either has adopted a standard form of the Uniform Electronic Transaction Act (UETA) or is subject to the federal E-SIGN Actⁱ. Both acts provide that electronic signatures are as useful as “wet” signatures as they cannot be denied validity simply because of their electronic formⁱⁱ. Counsel in each jurisdiction should review each state’s requirements for any exceptions which could impact a commercial real estate transaction. For example, if a real estate transaction involves a testamentary trust, original signatures may be required by a particular state. Parties to a commercial real estate transaction must understand the exceptions applicable in their jurisdiction and whether these exceptions will impact their ability to satisfy diligence requirements and/or close a transaction.

The basic requirements under these statutes generally include:

a) Authentication of the individual signatory: “Do you know who is signing?” Courts have relied on evidence based on prior practice between the parties, such as e-mail correspondence, and rely on the combination of email, username and password as a sufficient way to confirm that a party has, in fact, executed a document electronically. Parties to a commercial real estate transaction must assess the potential risk of a party claiming that it did not execute a document electronically, particularly with respect to larger transactions.

b) Consent and clear intent to sign: “Do they intend to sign and be bound?” All parties must consent to accept electronically signed documents. Additionally, the act of signing must be able to demonstrate the intent of the signatory to be bound by the terms of the document signed. This is often a function of the signing event. A DocuSign® process is very different than merely clicking on a radio button on a web page.

c) Reliability: “What was signed?” Each electronic signature must be associated with the signed document in a way that details how the signature was captured, and the terms contained in the document have not changed since signing. Obviously, each party needs to have access to the document and the evidence of signing at a later point in time.

The UETA provides heightened considerations for the electronic execution of promissory notes and negotiable documents as defined in Article 7 of the Uniform Commercial Codeⁱⁱⁱ.

2. Is electronic recording available in the state in which the property is located?

Most states have adopted the Uniform Real Property Electronic Recording Act^iv, which permits the electronic recording of legal instruments such as a mortgage or deed. According to the Uniform Law Commission, as of March 23, 2020, electronic recording is not available in Alaska, California, Colorado, Iowa, Louisiana, Maine, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Ohio, Oregon, Vermont and West Virginia. In states where electronic recording is permitted by statute, parties (and, as applicable, title companies) do not have to physically present documents for recording in clerks’ offices and the like. Instead, fully executed and notarized documents can be recorded electronically with the same effect.

3. Is remote online notarization available?

Documents in a commercial real estate transaction frequently have to be notarized, particularly if they are to be recorded. In today’s environment, a notarization may not be practical or possible. As a result, while a state could have a statute allowing for electronic recording, it will not benefit parties to a commercial real estate transaction if the applicable document cannot be notarized.

23 states have adopted remote online notarization (“RON”) statutes which permit notarization via videoconferencing methodsg^v. Remote online notarization allows individuals and institutions to connect with a notary over the internet usually through secure audio-video technology and the procedures no longer require the signers and witnesses to be in the same room or state as the notary^vi. The Wisconsin Senate recently approved Assembly Bill 293, making the state the first to pass a RON Bill in 2020^vii. New York’s Governor Cuomo has also permitted RON for a temporary period via the Executive Order released on March 19, 2020 in response to COVID-19^viii. However, the practical efficacy of the Executive Order is unclear since many notaries may not be equipped with the technological devices nor have the familiarity necessary to comply with the stringent conditions of RON. It should be noted that concerns still remain as to the authentication of the notary’s e-signature and parties must continue to guard against digital forgery and tampering.

In short, parties to a commercial real estate transaction must consider the options available to them for remote online notarization and whether the notaries will be able to properly comply with the applicable laws. Irrespective of location, each transaction team should work with its title company for the latest in practical application of this process.

4. Ease of Transacting: Software Solutions for Electronic Signatures

To ensure compliance with electronic signature laws, there are several secure software programs available for parties to a commercial real estate transaction. These programs facilitate the efficient transmission of legal documents for electronic execution while maintaining protocols that satisfy the requirements under the UETA, such as verifying signer identities using multiple forms of authentication, thereby confirming the intent of the signers, recording the date and all signature activities and protecting the documents using tamper-evident technology.

 

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ⁱSee the Uniform Electronic Transactions Act, Official Text Approved by NCCUSL at its Annual Conference (July 23-30, 1999). The official text of the UETA may reviewed on the Internet at <https://www.uniformlaws.org/viewdocument/final-act-no-comments-27?CommunityKey=2c04b76c-2b7d-4399-977e-d5876ba7e034&tab=librarydocuments> (last visited Mar. 24, 2020). UETA has been adopted by 47 states, the District of Columbia, Puerto Rico, and the Virgin Islands. New York, Illinois and Washington, the three states that have not adopted the UETA, however, pursuant to federal law, states who have not adopted a standard form of UETA are governed by the E-SIGN Act. See the Electronic Signatures in Global and National Commerce Act (codified at 15 USC 7001 et seq.). E-SIGN contains a reverse preemption clause which specifies that any state that does not pass an “approved and recommended” version of UETA, then that state’s electronic signature act will be preempted. See 15 USC 7002(a)(1).
ⁱⁱId.
ⁱⁱⁱSee UETA § 16.
^ivUniform Real Property Electronic Recording Act, Official Text Approved by NCCUSL at its Annual Conference (July 30-August 6, 2004). The official text of the URPERA may reviewed on the Internet at <https://www.uniformlaws.org/viewdocument/final-act-no-comments-59?CommunityKey=643c99ad-6abf-4046-9da4-0a6367da00cc&tab=librarydocuments> (last visited Mar. 24, 2020).
^vMacdougall, Andrew. “Wisconsin Becomes the First State to Adopt RON in 2020.” Legally Notarize Your Documents Online Anytime Anywhere, 26 Feb. 2020, www.notarize.com/blog/wisconsin-adopts-remote-online-notarization-2020.
^viLewis, Michael. “Remote Notarization: What You Need To Know.” National Notary Association, 24 Mar. 2020, www.nationalnotary.org/notary-bulletin/blog/2018/06/remote-notarization-what-you-need-to-know.
^viiDepartment of Financial Institutions, State of Wisconsin, Emergency Guidance on Notarization (March 18, 2020, updated March 20, 2020). Available at <http://wdfi.org/Apostilles_Notary_Public_and_Trademarks/pdf/Emergency%20Guidance%20-%20Remote%20Notarization.pdf> (last visited on March 24, 2020).
^viiiN.Y. Exec. Order No. 202.7 (March 19, 2020), Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency. Available at <https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/EO%20202.7.pdf> (last visited on March 24, 2020).

These materials have been prepared by Seyfarth Shaw LLP for informational purposes only and do not constitute legal advice.