E-signature law

A step toward an electronic real estate platform

by Tom Morgan   Fast-forward to a real estate transaction, year 2005. Buyer meets REALTOR® at the property. Buyer e-signs (electronic signature) the offer. REALTOR® immediately transmits the offer to seller. Buyer deposits earnest money in escrow account via electronic funds transfer, and seller, after a few minutes of negotiating, accepts revised offer from home PC with his e-signature. Buyer, still at the property, arranges for inspections and applies for mortgage. Buyer meets inspector at the property the next day, returns to office and negotiates repairs via e-mail to REALTOR®, and sets closing for the next day. Title policy is issued and mortgage approved within 24 hours. The closing then occurs electronically with buyer, seller, and closing agent e-signing documents while conferring via Internet video conference call.

Contract to closing in 72 hours with only one face-to-face meeting with the buyer? This vision of an all-electronic, paperless real estate sales transaction moved one step closer to reality on Oct. 1, 2000, the effective date of the federal Electronic Signatures in Global and National Commerce Act (E-SIGN). Strongly supported by the National Association of REALTORS® and other business associations, E-SIGN endows electronic signatures with the same legal clout enjoyed by orthodox pen-and-ink agreements. The bill (S.761) was signed by President Clinton on June 30, 2000, after sailing through Congress with strong bipartisan support. NAR President Dennis Cronk noted the advantage that E-SIGN brings to the real estate transaction: "REALTORS® will be among the first to take full advantage of this innovative legislation, for it promises to save time and money, reduce costs and red tape, minimize mistakes and misunderstandings, and even help the environment by sparing a few trees that would otherwise be pulped for traditional paperwork," he said.

What does E-SIGN mean for my business?
For homebuyers and sellers, the new law promises additional efficiencies by encouraging the location of essential instruments–financial disclosures, contracts, mortgages, escrows, appraisals, titles, insurance forms, and the like–in a single "e-platform." Convenience and accessibility will soon characterize a suite of transactions that was once perceived as formidably complicated. However, it is important to note that the new and sophisticated e-signature approach will not displace the old and familiar. The law does not force the use of an electronic signature but simply allows that choice if it is preferred by the parties to the transaction.

One of the first places that e-signatures could be useful is in dealing with all the supporting documentation at a closing. Most buyers and sellers are a bit surprised by the daunting pile of documents that awaits their signature. Although the deed and mortgage might still be executed with a pen, the dozen or so supporting documents could be dealt with electronically.

Who will provide the technology?
The promise of E-SIGN will not, however, become a reality until technology and business practices evolve to the point that the software exists that makes electronic signatures user-friendly, easily understood, and universally-accepted.

Only a few years ago, entrepreneurs were racing to discover the right combination of technology and business model that would succeed in cyberspace; today entrepreneurs and large corporations are competing to win your allegiance to their version of the e-platform paradigm. As with any business decision, the best REALTOR® approach should be to study the many alternatives that exist and will exist and to choose which vendor or combination of vendors makes the most sense to your firm.

Choosing between current e-signature players is difficult, and experts are unwilling to predict which approach might ultimately win the majority of transactions. The traditional definition of signature (writing your name by hand) does not really describe the different technologies now available to e-authenticate electronic documents.

The competitors vying for e-signature business are many and multiplying. Some of those already in the arena include ILumin, Litronic, Interlink Electronics, SignOnline, Verisign, and Entrust. While the technology each uses ranges from techniques such as iris scans to smart cards to digital certificates, the idea behind all of them is the same–to make a secure, easy-to-use system for e-signatures.

VeriSign and Entrust already have a strong Internet presence building "public key" systems that allow, for example, secure credit card payments for online purchases.

Looking at the bigger picture–an electronic real estate platform– several entities have emerged. With partners like Homestore.com, NAR, VeriSign, and others, eRealtor.com is building a platform with the REALTOR® at the center of the transaction. One of the components of this platform is ZipForm real estate forms software, which will be included as a member benefit for all Texas REALTORS® starting in 2001. HomeAdvisor and iProperty.com are among several others developing electronic transaction platforms for real estate.

What about fraud?
Fraud is always a concern with any business transaction. The first contracts that were recognized in Western civilization were memorialized by items such as peppercorns–an authentication process that seems absurd today. Pieces of property of substantial value have exchanged hands based on a signed "X," a signature easily forged. In fact, one of the largest land frauds in the history of the United States involved forged paper documents in the 19th century purporting to show that the forger had been granted the entire city of San Francisco by the King of Spain in an earlier century. The forger collected substantial rents and payments over a number of years before the documents were proved false.

Will there be fraud associated with e-signatures? No question about it. Fraud will always exist as long as there are individuals who are willing to break the law. However, there is no evidence that the incidence of fraud will be any greater or any less with e-signature authentication of documents than is currently the practice with signed documents.

What about Texas laws?
E-SIGN contains language that establishes a federal pre-emption in order to make certain that its provisions apply uniformly across the country. If the Texas legislature were to pass a bill consistent with the federal statute, then the state measure will prevail; if not, then the federal statute will rule.

Tom Morgan is legal analyst for TAR.

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