Courts Laying the Foundation for Paperless Mortgages

When it comes to paperless mortgages, lenders know what the advantages are – lower costs, more flexibility and a faster closing process. But despite the advantages ditching paper provides, widespread adoption of paperless mortgages has been extremely slow.

Part of the reason for the slow adoption is the patchwork of laws governing things such as electronic notarization and acceptance from investors. But another challenge is concern over legal acceptance of eNotes, despite clear laws providing that electronically signed documents are as valid as those signed on physical paper. In a recent survey from National Mortgage News, 30% of lenders cited legal acceptance as one of the two biggest challenges to paperless mortgage adoption.

Earlier this spring, however, two court rulings laid the groundwork for removing those concerns. The rulings – one in New York and one in Florida – affirmed that lenders can enforce e-signed and transferred notes. In both cases, the judges ruled that the electronic transfer history of the note signed electronically proved that the lender had the legal authority to foreclose on a delinquent loan.

This should help allay concerns held by investors about purchasing eSigned notes on the secondary market.

The two cases involved different banks, but the outcome was the same. In New York, the state appeals court found that the loan currently held by New York Community Bank had a concrete transfer history from the originating institution to the current bank through the FDIC.

"The transfer history, together with the copy of the e-note itself, were sufficient 'to review the terms of the transferable record and to establish the identity of the person [or entity] having control of the transferable record,'" the court wrote in its decision. "This evidence was sufficient to establish the plaintiff's standing as the holder of the e-note and rendered the lack of proof of valid assignment irrelevant.”

The Florida case, which involved Well Fargo, found the same results regarding a loan owned by Fannie Mae.

These decisions erase the doubts many investors had about taking electronic notes. By making the loans more appealing to investors, the demand and appetite for paperless mortgages should rise, opening the door for lenders and originators to fully embrace the electronic closing table.

The technology to provide a complete paperless experience has been available for quite a while, and now the legal framework and support are providing the foundation for more lenders to make the leap into eMortgages.

Don’t be left behind. Ditch the paper and give your customers what they want – a smooth, fully electronic buying experience.