By Paul Hodnefield, Esq.

Today, electronic transactions are an integral part of commerce. Consenting parties have the ability to place orders, enter into contracts, issue invoices and conduct other business activities reliably and without generating any paper. Electronic transactions generally offer far greater speed than paper-based processes and at a tiny fraction of the cost. Not surprisingly, businesses have enthusiastically embraced electronic commerce technology.

One common commercial transaction, however, has yet to completely break free of its reliance on paper documents. That is the recording of real estate conveyances. Electronic recording technology does exist and is widely used. However, in most cases it still begins with paper documents. These tangible records require additional time and expense to create, transport and process. Until paper can be purged from the process entirely, electronic real estate recording cannot reach its full efficiency potential.

State notary requirements often prevent the complete elimination of paper from the real estate recording process. The challenge arises when applying existing notary laws to purely electronic records. While several states have enacted laws to govern electronic notarization of electronic records, the majority of state notary statutes are still firmly rooted in the paper age.

States originally enacted notary statutes at a time when lawmakers could not conceive of any medium besides paper for recording real estate conveyances. State laws tacitly assumed that the notarial act would use ink signatures on paper and be evidenced by the physical application of a notary’s seal. Consequently, paper remains the starting point for recording real estate conveyances in the majority of states.

Most state notary statutes do not expressly permit electronic notarization of a purely electronic record. However, they can easily adapt to scanned images of the original documents. The parties involved must still execute paper documents with ink signatures. Likewise, the notary must physically sign and apply a seal to the paper document. At that point, scanned images of the tangible documents can be recorded electronically. As a result, electronic recording tends to be an add-on to the end of the traditional paper process.

To take full advantage of the efficiency offered by the recording of purely electronic conveyance records, notary laws in many states must catch up with the available technology. The law needs to address notarization of a purely electronic record. This is no small obstacle. Existing notary laws are far from uniform and many will not adapt well to electronic records. Moreover, concerns about the integrity of notarial acts performed electronically have slowed modernization of the law.

In recent years, state and federal legislation opened the door to electronic notarization. The widely adopted Uniform Electronic Transactions Act (“UETA”) recognizes the validity of notarial acts performed electronically. Likewise, the federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”) and Uniform Electronic Real Property Recording Act (“URPERA”) both recognize that a notarization requirement can be satisfied electronically.

Although UETA, E-SIGN and URPERA all recognize the validity of notarial acts performed electronically, none provide guidance for how to notarize a purely electronic record. The lack of specific statutory guidance in many states makes the parties to conveyance transactions reluctant to use electronic notarization, even when it is an option. After all, nobody wants to be the test case.

Fortunately, that situation may soon change with adoption of the Revised Uniform Law on Notarial Acts (“RULONA”). RULONA was designed to modernize notary law, create greater uniformity and reinforce the integrity of all notarial acts, not just those performed electronically.

RULONA provides the “how” lacking in other laws that recognize the validly of electronic notarizations. It does this by authorizing the commissioning authority to adopt rules that prescribe the manner for performing notarial acts with respect to both tangible and electronic records. The state commissioning authority may also establish minimum standards for acceptable electronic notary technology.

Another benefit of RULONA is that it reconciles prior notary law with new technology. For example, under RULONA all notarial acts must be evidenced by a certificate. If the notarial act is performed regarding a tangible record, the certificate must be part of or securely attached to the record. However, if the notarial act is performed regarding an electronic record, the certificate can take an electronic format that is affixed to or logically associated with the record.

The certificate must include an official stamp. The official stamp may be physically stamped, embossed or otherwise attached to a tangible record. On an electronic record, however, the official stamp would also be electronic and attached to or logically associated with the electronic certificate.

RULONA includes a number of provisions that should alleviate concerns over the integrity of all notarial acts, not just those performed electronically. The party signing a record must personally appear before the notary, even if the transaction involves electronic signatures and electronic records. Currently, that requires a physical presence before the notary. The official comments to RULONA make clear that an appearance by video or audio technology does not satisfy the personal appearance requirement.

Likewise, RULONA requires the notary to verify the identity of the person appearing before them. If the notary is not personally acquainted with the person, RULONA sets forth methods by which a notarial officer may obtain sufficient proof of the person’s identity.

RULONA offers greater uniformity, access to the most efficient technology and improved integrity of the notary process. However, to gain its benefits, states must first enact it.

The Uniform Law Commission approved RULONA in 2010. Only three states, Iowa, North Dakota and Oregon, have enacted RULONA as of this writing. Pennsylvania is expected to enact the legislation later in 2013.

There has not been any real opposition to RULONA. Those who regularly work with real estate recording generally support the legislation. In fact, the impact of RULONA extends far wider than the real estate industry. Any business process that regularly requires the use of notarized records will benefit from RULONA. Therefore, stakeholders representing a number of different industries are likely to promote its adoption over the next few years.

Technology tends to advance rapidly with the law left to catch up later. That has certainly been the case with electronic recording of real estate conveyance documents and state notary laws. RULONA will modernize the notary laws, bring greater uniformity and allow greater efficiency for those who use notarized records as part of their business process.

Corporation Service Company (CSC) will monitor the progress of RULONA and provide updates of any significant developments on our CSCTransactionWatch website. Please visit http://csctransactionwatch.com/ for the latest news on RULONA and related legislation.

Paul Hodnefield is associate general counsel for Corporation Service Company (CSC) and a frequent speaker/writer on UCC and real estate recording issues. Please feel free to contact him with questions or comments at phodnefi@cscinfo.com or 800-927-9801, ext. 62375.

Removing Notary Law Barriers to Electronic Real Estate Recording