Remote Online Notarization: Steps Lenders Can Take During Coronavirus Pandemic

Kobie Pruitt kpruitt@mba.org

The COVID-19 virus has created a level of uncertainty in our country not seen since the financial crisis of 2008. Moreover, recent orders by state governments to shelter in place or executive proclamations closing non-essential businesses have made it exceedingly difficult for our industry to serve consumers and complete real estate financial transactions.

Certain acts such as notarization of financial documents, a necessary component of the residential loan closing process, is especially difficult because consumers are typically required to appear in person before the notary under state law.

Due to limited opportunities for face-to-face interactions, the ability to use remote online notarization to complete financial transactions has become a major priority for the real estate finance industry. RON uses two-way audio-visual technology to complete a notarial act when the principal is not in the same physical location as the notary public.

In response to the health crisis, many states have acted by introducing emergency rules to allow remote notarizations or RON on a temporary basis if their state did not already have RON in statute. However, Margo Tank, a partner at the firm DLA Piper, urges caution, saying, “Business should take note that many of the RON emergency orders have specific requirements, limitations or end dates, and should be reviewed carefully.”

For example, Tank said, “some of the orders, while permitting audio-video communications with the notary, still require either the signer or the notary, or both, to ink sign rather than permitting the use of electronic signatures on the documentation. Other states have taken a different approach and have fully enabled an all-electronic RON process by endorsing interstate recognition principles.”

A bipartisan federal bill to enact a consistent RON standard nationwide has been introduced but has yet to gain momentum. “The absence of a single federal law, along with state efforts to create emergency orders to permit loan closings, has created a mismatch of rules across the country for the use of remote online notarization,” said Rick Hill, MBA Vice President of Industry Technology. “The result is that major investors, such as Fannie Mae and Freddie Mac, have had to interpret laws and executive orders to determine the jurisdictions where they will permit RON.”

The disparate nature of these executive orders has made it extremely difficult for members of real estate finance industry to know what steps they should take to use RON. Therefore, lenders wishing to use a remote online notary during the closing process should consider the following steps:

• Consult investor guidelines for jurisdictional availability and operational requirements.  GSE requirements are available on the respective Fannie Mae and Freddie Mac websites. Note: Fannie Mae has also provided a list of FAQs, which include additional guidelines for RON transactions.
• Consult with title underwriters to discern their requirements and jurisdictions where they will offer insurance if RON is utilized
• Identify/evaluate RON vendors for suitability with your existing technology platform.  A list of known RON vendors is available on the MISMO website.
• Use the MBA Compliance Essentials: Remote Online Notarization State Survey, which can assist in demystifying the RON legislative and regulatory landscape (https://www.mba.org/store/products/publications-and-guides/ce-remote-online-notarization-state-surveys)

“The recent pandemic has exposed clear deficiencies in our existing state laws, which are inadequate to serve consumers with shifting technology needs.” said Kobie Pruitt, MBA Associate Director of State Government Affairs. “States without remote notaries need to strongly consider passing legislation consistent with one of the nationally recognized models for RON implementation and provide consumers with additional resources to complete their financial transactions.”