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Can We Have A Paperless Real Estate Closing?

Given the widespread use of electronic devices for just about everything — and given the growing volume of ecommerce — it’s not unreasonable to ask if we can have paperless closings, events sealed with electronic signatures.

For the moment and most-likely for a long time to come the answer is no. The problem is not one of technology — if you can order everything from shoes to software online then why not closing papers? — instead the barriers involve conflicting interests and long-time legal standings.

As an example, the HUD has announced that it would accept electronic signatures for FHA loans “on third party documents included in the case binder for mortgage insurance endorsement.”

Okay, so what’s a third-party document?

“Third party documents, says HUD, “are those that are originated and signed outside of the mortgagee’s control, such as a sales contract. An indication of the electronic signature and date should be clearly visible when viewed electronically and in a paper copy of the electronically signed document. Mortgagees must employ the same level of care and due diligence with electronically signed documents that they would for paper documents with ‘wet’ or ink signatures.”

Notice that HUD does NOT include a number of core documents where electronic signatures are permissible. According to HUD, mortgage documents — including the mortgage note — must have regular signatures. Also, the HUD-1 and the sale agreement must be signed by humans.


The reason electronic signatures are not allowed for mortgage documents is that they were created by the lender are the lender is not a third party.

Barriers

Okay, why not allow electronic signatures for all real estate paperwork?

The reason is to assure with total certainty that the buyer and seller really and truly saw the documents they signed, had an opportunity to read them and that no one other than the buyer and the seller signed the HUD-1, the sale agreement or the mortgage note — the central papers of most real estate transactions.

And until things change, hang on to your quill and ink.

Will this change in the future? Not soon. The reason is that many different parties to the transaction — the buyer, seller, closing agent, lender and others all want documents with original signatures. So while some paperwork can be done electronically, some cannot.

For the latest information speak with local brokers, attorneys and closing agents in your community.

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Posted in: Closing

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