Regulatory Updates, Remote Online Notarization
Wednesday, April 8, 2020
Fannie Mae and Freddie Mac have updated their guidance regarding the impact of COVID-19 on loan originations, including details regarding the use of remote online notarization.
In Lender Letter 2020-03, Fannie Mae noted that “due to disruption related to COVID-19, many lenders are reporting difficulty in obtaining in person notarizations and have requested increased flexibility to obtain remote notarizations (RON) to be used with eMortgage transactions as well as ink-signed transactions. Selling Guide, A2-5.1-03, Electronic Records, Signatures, and Transactions describes our current policies with respect to using RON and with this Lender Letter will allow the following flexibilities.”
It said lenders may sell loans with remotely notarized loan documents in specific states, with specific terms and conditions. Among other things:
The notarization must be performed in accordance with and be legally valid under the laws and regulations of the states in which the notarization is performed, at the time it was performed, and in compliance with the Uniform Electronic Transactions Act, as adopted in such state, and the Electronic Signatures in Global and National Commerce Act.
The notary public must be licensed and physically located in the state where the notarial act occurred and, where required by law or regulations, must be specifically licensed to perform a remote online notarization.
The loan must be delivered with Special Feature Code 861 if the remotely notarized document is a security instrument or amendment to the security instrument.
The lender is required to maintain the recording of the notarial ceremony for the life of the loan.
If the loan document must be recorded, then the county recorder in the state and county where the property is located must accept the remotely notarized document for the recording.
The system used for remote notarization must meet the following minimum standards:
“At least two-factor identity authentication, including using a government-issued photo ID that has a signature, credential analysis and identity-proofing;
Tamper-sealed notarized documents and system security sufficient to (A) prevent interference with the authenticity, integrity and security of the notarial ceremony or corruption or loss of the recording of the same, and (B) protect the communication technology, electronic record and backup record from unauthorized use;
The remote online notary must keep a secure electronic journal of the notarial act including evidence of identity of the principal (a video and audio conference can be the basis for satisfactory evidence of identification) and maintain a backup of the electronic record; and
Recording of the notarial ceremony with storage for the minimum period required by applicable laws or if no period is specified in the applicable law, for seven years.”
Lenders will be required to make all selling representations and warranties per the Selling Guide, including representations and warranties related to:
Clear title and first lien enforceability;
Compliance with laws and responsible lending practices; and
Requirements regarding title insurance, “including those in B7-2-04, Special Title Insurance Coverage Considerations. If the notarized document is a security instrument or an amendment to a security instrument, the remote notarization must comply with the title requirements in B7-2-04 and the title insurance company may not take any exception for the remotely notarized loan.”
Lenders may not require a borrower to use remote notarization and must have other notary options for borrowers available.
The list of states, as of March 31, include Alabama, Alaska, Arizona, Connecticut, Colorado, Delaware, District of Columbia, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin and Wyoming.
“If, after the publishing of this Lender Letter, a state not included in the above table expressly adopts a law that expressly permit the use of remote notarization or expressly accepts (either through state law or through the application of an express federal law) remote notarizations performed out-of-state in accordance with the laws of the state in which the notarial act is performed, remotely notarized loan documents meeting the requirements above will be permitted.”
Among states which have authorized RON since then are Arkansas and Rhode Island.
Freddie Mac issued Bulletin 2020-8, which states, “Section 1401.16 provides that a seller may sell mortgages to Freddie Mac in which electronic notarization is used to notarize electronic security instrument(s), other electronic closing documents (Electronic Closing Documents) and/or assignments and other post-closing documents (Post-Closing Documents). As of the effective date of this bulletin, such electronic notarization otherwise meeting the requirements of this section may involve a remote process (Remote Online Notarization) in the states listed in Attachment C to this bulletin, Permitted States for Remote Online Notarization, provided that the system used for the remote notarization meets the following minimum standards:
At least two-factor identity authentication, including using a government-issued photo ID that has a signature, credential analysis and identity-proofing;
Tamper-sealed notarized documents and system security sufficient to: (A) prevent interference with the authenticity, integrity and security of the notarial ceremony or corruption or loss of the recording of the same, and (B) protect the communication technology, electronic record and backup record from unauthorized use;
The remote online notary must keep a secure electronic journal of the notarial act, including evidence of identity of the principal (a video and audio conference can be the basis for satisfactory evidence of identification) and maintain a backup of the electronic record; and
Recording of the notarial ceremony with storage for the minimum period required by applicable laws or if no period is specified in the applicable law, for seven years.”
Freddie Mac also requires notaries to be located in a state which authorizes licensed notaries to engage in remote online notarization and must be licensed to engage in remote online notarization.
“If the borrower and the mortgaged premises are located in a state different from the state in which the notary public is licensed and located, the state law in the state where the notary public is licensed and located must authorize the notary public to engage in such interstate remote online notarization transactions.”
The lenders must obtain a title policy that meets the requirement of the guide and does not make or take any exceptions to the fact that the closing documents and/or post-closing documents have been remotely, electronically notarized by a notary public.
The signers’ electronic signatures must be attached to or logically associated with the closing documents and/or post-closing documents and have been remotely, electronically notarized using a system meeting the minimum technical standards. The lender must record the electronically signed and remotely, electronically notarized documents in the applicable public land records recorder’s office, in compliance with the requirements of the guide. The lender is required to maintain the recording of the notarial ceremony for the life of the loan. The lender may not require remote online notarization.
“The seller represents and warrants to, and covenants and agrees with, Freddie Mac that the seller has confirmed, that all documents that are electronically created, executed, notarized and recorded:
Comply with all applicable laws, regulations and rules of each state that permits remote online notarization and the state in which the mortgaged premises is located;
Comply with the UETA and/or E-SIGN, as applicable;
Are valid, effective and enforceable in accordance with the terms therein;
Are valid first liens on the mortgaged premises, as required by the Guide; and
Are recordable in the public land records of the state in which the mortgaged premises is located.
Freddie Mac provided the same list of states where remote notarizations are approved as of March 31. Arkansas and Rhode Island since have authorized RON.
The bulletin also states, “Given the rapid upsurge in remote working arrangements, in response to requests from seller/servicers that have not yet implemented electronic signing platforms, we are implementing a temporary solution that involves signing certain contracts and amendments between Freddie Mac and a seller/servicer by means of an email exchange. For more information on how to leverage this interim accommodation, contact your Freddie Mac representative or call the Customer Support Contact Center at 800-FREDDIE.”
It also reminded lenders that only a “wet” signature is permitted on a note related to a typical closing.
“Except for eMortgage transactions conducted in accordance with Chapter 1402, a note cannot be executed using an electronic signature,” it stated.
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