Remote Online Notarization, or RON, is one of the most exciting developments in the eClosing world in recent years. There are a few common misconceptions surrounding RON, and depending on who you talk to, it might be the greatest thing since sliced bread, or a flash in the pan that will never really catch on. Here we will explain the latest developments, the pros and cons, and the current reality of RON eClosings.
RON allows borrowers to execute a completely electronic closing ceremony by remotely connecting to the other parties (the eNotary, the closing agent, an attorney if required, etc.) via virtual audio/video connections. The electronic documents are presented to the borrower on-screen for eSignatures, and the other parties are connected in one or more video windows, allowing everyone to talk together during the process. Think of a Skype or Facetime call, but with documents and eSignatures added, and a system of authentication and security around the process. Borrowers, closing agents, notaries, lenders and attorneys can all join the process virtually.
RON requires each state to enact specific laws to enable their remote notarization process. Virginia was the first state to create such a law back in 2012, enabling a Virginia notary to remotely witness a signing and apply their notary signature and seal information by following specific procedures, using systems designed around that law.
Montana followed Virginia, but their RON law was more limited, allowing RON only for Montana residents and transactions. Montana has now amended their RON law to be more general– the new law goes into effect October 1, 2019. Texas and several other states then followed suit, allowing their notaries to witness eSignings in all other states (similar to the Virginia law).
The legal concept behind RON is based on the long-established principle of “state reciprocity” in the paper world. For example, if a resident of Idaho was traveling in Virginia, and needed to have a paper document notarized, Idaho would recognize the legal validity of that paper notarization when they returned home with it.
Does this mean that a Virginia notary public can perform RON eNotarizations on documents in all the other 49 states? For general-purpose documents, the answer is generally yes, but for a mortgage eClosing, the answer is more complex.
RON eClosings are happening today, albeit on a limited basis. Many people believe that they will be the future of eClosing, creating the easiest possible path for borrowers who can close from home, or work, without having to physically travel to a title company or attorney’s office. Here are some factors to take into consideration when planning your own RON journey:
A typical closing package includes lender docs (generated by their Loan Origination System or by a doc provider like Docutech), title docs, and maybe some one-off docs that are specific to that borrower’s circumstances. Since a RON eClosing is completely virtual, all of those documents must be fully and accurately tagged for eSignatures, which requires human effort and may introduce errors if any tags are missed. This can slow down the closing process and becomes especially burdensome if a mistake is discovered at closing and the lender package needs to be redrawn, requiring re-tagging. Pre-tagged documents, like the documents generated from our ConformX dynamic doc engine, help solve this challenge for the lender docs, leaving only the title docs for the manual tagging effort. There are also software engines that use artificial intelligence (AI) to “read” untagged docs and attempt to add the tags automatically.
In general, investor eNote acceptance is limited to Fannie Mae and Freddie Mac for mainstream production, although other investors like Wells Fargo are now running pilot programs. Ginnie Mae and the Federal Home Loan Banks are also working hard to develop their own eNote programs, and the upcoming Secured Party functionality in the MERS eRegistry will help support that.
In addition to the state reciprocity principle, investors are also concerned about possible jurisdictional exceptions at the state level that might later put their lien position in jeopardy. This could theoretically arise from a conflict over the state notary laws where the borrower and property were located, vs. the laws in the state where the notary performed the remote notarization, like Virginia or Texas.
Because of this, Fannie and Freddie have taken a careful approach, permitting RON to be used in the 22 states that have passed legislation which expressly permits it, and in an expanded group of states under a variance that their customers must execute.
A county recorder has the right to reject any recordable document if they believe that document may not be legitimate for some reason. This has led to concerns that certain county recorders might take issue with a Deed of Trust submitted for recording in their county, but that was signed by a Remote eNotary in another state a thousand miles away. eRecording and RON solution providers are building a database of intelligent records around this, to know in advance if a particular county is RON-friendly or not.
Some title underwriters have expressed concern over insuring a RON-eClosed loan, since they would be on the hook if it were rejected by the county recorder. However, this concern seems to be easing up, with most of the large title insurers willing to insure RON eClosings now.
MISMO recently released a “Remote Online Notarization Standards Document” that was created over the past 18 months through the efforts of the RON Development Workgroup. It is not a “standard” in the classic sense of MISMO, which traditionally focuses on defining very specific XML data transaction standards for business partners to use when sending information back and forth. The RON Standards Document, recognizing the variations across technology solution platforms and amongst the various state laws, attempts to set forth minimum consistent levels of interoperability, and makes recommendations for system features, to help both RON vendors and state legislators be more fully informed of the need for uniformity and interoperability moving forward, both in the technology solutions and in state laws.
Some buyers (particularly first-time homebuyers) want to have someone there with them for their closing experience. Most of the RON transactions today seem to be occurring for older adults who have already been through multiple loan closings. Lenders will want to work with their borrowers to ensure that they have the best possible closing experience – for some, that might be RON, while for others, that might be an in-person closing to set them at ease.
State Law Variations
Just as with in-person eNotarization laws, each RON state law varies somewhat, and RON providers must ensure that their systems comply with each state’s specific requirements.
One notable issue arose in the early days of RON, due to Iowa’s in-person eNotary law: Where most state laws refer to a “personal appearance,” Iowa required a “physical appearance” of the signer before the notary. While “personal appearance” can be satisfied via a remote video link, a “physical appearance” obviously can’t! Iowa was not aware that their law was different than most until it was brought to their attention, and they have now aligned their law with the “personal appearance” phrase (the new law is expected to take effect mid-2020).
There are other nuances to be aware of – for example, most of today’s notary laws require the notary to maintain a single journal of their notarization events, and similarly for RON laws, which also require a video record of the remote notarization signing event to be saved. But those laws have not caught up to the reality that there are multiple eNotary and RON solution providers today, who each incorporate notary journal and RON video technology in order to save the record of the event. So if an eNotary performs eNotarizations on various different platforms, their journal entries are spread among multiple technology platforms. And it’s not realistic to expect the average notary public, even one who has qualified to be an eNotary or a Remote Notary in their state, to have the tech savvy needed to securely store and maintain the technical records of each eNotarization event they perform, whether in-person or remote (nor should they, given the level of concern over personal data security in today’s world).
None of these challenges are insurmountable, and RON eClosings are indeed happening in the real world today – they simply require careful management and oversight to ensure that all of the factors above are aligned. As we move into a world where doc tagging becomes more fully automated and seamless, and where county recorders become fully familiar and comfortable with new technology developments like RON, all participants in the process will gain confidence in this technology and it will steadily become more scalable and move into the mainstream for lender operations.
The good news is that even today, while RON is maturing, eClosing solutions like Docutech’s Solex eClosing and eVault support a broad range of options for in-person eClosings, including paper or in-person eNotary, and of course the SMART Doc eNote for investor delivery, thus enabling each lender and each loan to be as ‘e’ as they can be.
Learn more about Solex eClosing by downloading our solution brief.