The Case for Electronic Signing

The U.S. Congress and the various States enabled electronic signatures in the mid 1990’s, which in technology terms is just a little bit short of forever.  Electronic signatures can replace traditional handwritten signatures on financial, legal, medical, and other business documents.  Properly created electronic signatures assure each party of:

  • Integrity—The data/document isn’t changed between the sender and receiver.
  • Authenticity—The document really came from the signer.
  •  Non-Repudiation—The document sender cannot support any claim they did not send it or that the content was altered.
  • Acceptance—Signing establishes the signer’s agreement with the document.

So why aren’t you using this powerful production enhancement tool already?

Some Important Considerations
For electronic signatures to be accepted globally, a secure technology standard was established utilizing a proven cryptographic system. This system uses a private key, known only to the signer, to create the electronic signature, and a public key, available to all intended receivers, to verify the digital signature.

One property of any signing is its uniqueness to that event.  A signature may create legal consequences and multiple signatures may create multiple obligations, such as by signing two checks for $500 each, you create a total obligation of $1,000.  However, in two identically worded documents where “A” agrees to lend and “B” agrees borrow on a mortgage for a property, then there will most likely be a single contract even if multiple signed copies exist.  This operational decision heavily depends on the contents of the signed document.

It may be critical to distinguish between originals and any copies, to prevent the copies from being taken for distinct obligations. Successful digital signature technologies must include a capability to distinguish between an original and its copies whenever that distinction is significant.

The centuries-old means of documenting transactions and creating signatures are changing. Documents are often still written on paper, sometimes just to satisfy the legal need for a recognized form. In many instances, much of the information exchanged to effect a transaction never takes paper form. Appraisals in Adobe PDF format are a common example, with a number of lenders now requiring this format instead of traditional paper appraisals.  Computer-based information can be utilized differently than its paper counterpart. Only human eyes can efficiently read paper documents, but computers can read digital information and take designed actions based on the contents.  With such changes can come speed and efficiency, but there are also opportunities for fraud and deception.

What About the Notary Function?
A notary’s journal is a series of numbered, sequential records of each act of that notary. Much more than just a list of recorded event dates, the numbered sequential order of each entry adds integrity since a new entry cannot be “slipped in” between two previous ones. The way a notary book is bound ensures that pages cannot be inserted or removed without visible evidence of such tampering.

Such standard features of paper-based notary technology must survive for an e-notarization system to be accepted for use in a given jurisdiction. If electronic records can be modified at all, then the system has no integrity. When choosing an e-notary system, make sure that each entry is numbered according to the time of its entry and that entries or pages cannot be inserted or deleted.

Notary regulations vary between jurisdictions.  An electronic notary system must be customizable enough to meet the demands of differing jurisdictions.  For example, California requires a fingerprint on some types of notarized documents, where Oregon might view fingerprint collection as an invasion of privacy.  A notary system that requires a fingerprint will not satisfy users in both states, and a system that does not may cause some California records to be incomplete. Therefore, electronic notary technology must allow the responsible party to custom-tailor the notary application as required for each jurisdiction.

Most states require that the notary observe the signer making their signature, which will require some sort of valid physical presence at the signing.  This is done so the notary can observe for competence, coercion, or any other outside influences that could affect the validity of the signature. As if that were not enough, the U.S. exists in a world market.  To that end, the American Bar Association has established a Cybernotary Subcommittee to address creating a universal standard for electronic signature acceptance.  The subcommittee has “focused its efforts on defining the scope of electronic notarial practice, setting qualification criteria, and working with individuals and organizations to ensure acceptance of CyberNotarial acts in the U.S. and abroad.”

Other Uses
But aren’t there other, perhaps simpler, uses?  What about using electronic signatures on origination packages, or to sign initial and updated disclosure forms or agreements?  Can that be done?  Well, you get a definite “maybe.”

Some electronic signature systems require physical presence and a signing pad or tool for the customer to use.  Other systems are web based and require only that the signer have Internet access to review and sign any documents (See sidebar for resources).  Your intended use of such systems will help you decide the best approach for your company.

Utilization is still minor within our industry, perhaps due to the concerns and potential problems that still need further review.  As the eMortgage reality comes closer and closer, you may not want to just wait around.

The average mortgage customer is a generation younger than those of us providing mortgage lending and making process decisions.  Customers will naturally gravitate to those suppliers that make the process the easiest to use and understand.

Electronic Signature Resources

AlphaTrust Corporation

American Bar Assn

Angel Infinity, Inc.

DocuSign, Inc

Interlink Electronics, Inc

Topaz Systems

Valyd, Inc


Credit to Bruce Forge

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