Developing Law on eMortgages Including Electronic Evidence
Margo H.K. Tank
Buckley Kolar LLP
Current eMortgage Legal Infrastructure
• Legal Framework for eSignatures and eRecords: ESIGN and UETA provide the
legal basis to use of electronic records and signatures.
• eRecording and eNotarization: Uniform Real Property Electronic Recordation Act
(URPERA) and other state laws authorize electronic notarization and recording by
county clerks and recorders.
• Other federal and state laws: e.g., GLBA, state record retention laws
• Regulator Acceptance: The federal agencies who have regulatory oversight over
financial institutions have issued guidance on electronic transactions (FRB, HUD,
• FHA eMortgage Requirements: In process.
Uniform Electronic Transactions Act (UETA)
• Current Adoption: 48 jurisdictions
• Section 7 of UETA provides basic rules:
» A record or signature may not be denied legal effect or enforceability because it
is in electronic form.
» A contract may not be denied legal effect or enforceability because solely
because an electronic record was used in its formation.
» Any law that requires “a writing” will be satisfied by an electronic record.
» Any “signature” requirement in the law will be met if there is an electronic
• Electronic Record: A record, created, generated, sent, communicated, received or
stored by electronic means and is retrievable in perceivable form.
• Electronic Signature :
» Any sound, symbol or process;
» Attached to or logically associated with an electronic record; and
» Executed or adopted with the intent to sign the electronic record.
• May be accomplished through technology, through process and procedures, or through
a combination of both.
Federal eCommerce Law - ESIGN
• ESIGN: A federal solution
» Applies to state and federal laws
» Sets boundaries for regulatory authority
» Technology neutral
» Same definition of electronic record and signature
• ESIGN’s Relationship to UETA:
» If state adopts uniform UETA, ESIGN may be superceded in whole or in part.
» If there are non-uniform amendments to UETA that conflict with the main
provisions in ESIGN, ESIGN would preempt UETA.
» State alternative needs to be consistent with ESIGN or preempted
• Main differences between ESIGN and UETA: Consumer consent provision and send
and receipt provisions.
Consent Provisions under ESIGN and UETA
• UETA and ESIGN provide that:
» A party must agree to use electronic records and/or signatures with respect to a
specific transaction or group of transactions.
» The borrower must expressly agree to treat an electronic record as a transferable
• ESIGN requires businesses to obtain from consumers their electronic consent to
receive information electronically that the law requires to be delivered in writing (e.g.,
TILA and RESPA disclosures, etc.).
» Disclosures must inform consumer of the option to receive disclosures in paper
form, the right to withdraw consent, how to obtain paper copies, and the
hardware/software requirements for access and retention.
» Consent must be obtained electronically in a manner that reasonably
demonstrates that the consumer will be able to access required notices or
eMortgage Transaction Issues
• Authentication and attribution risk – “That’s someone else’s signature, not mine!”
• Repudiation risk – “That’s my signature, but I’ve never seen this document!”
• Alteration or retention risk – “That’s my signature, but this is not the same document I
• All of the above risks can be mitigated by process and technology.
» Identification and verification
» Business process – document was not bypassable
» Audit logs
» Tamper-evident digital signatures
Electronic Format and Delivery of Consumer
• ESIGN and UETA do not supercede or affect any laws that specify content, proximity
and format of any warning, notice, disclosure or other record to be posted, displayed or
• For disclosures that are required to be in writing, ESIGN does not consider oral
disclosures to be a valid form of electronic delivery.
Federal Reserve Board’s Rules
• Federal Reserve Board’s Interim Final Rules – Provides uniform guidance for the
electronic delivery of disclosures required by consumer protection laws.
» Disclosures can be provided in electronic form, provided that creditor complies with
consumer consent and other applicable provisions of ESIGN;
» No ESIGN consent required for shopping disclosures under Reg Z or application-
related disclosures under Reg B.
» HUD Rules now specifically allow for RESPA disclosures to be provided electronically.
Regulation Z Amendments
• Continues to allow creditor to deliver one electronic copy of notice
of right to rescind to each entitled consumer.
• Expanded and flexible guidance for determining how to present
disclosures that are required to be “on or with the application”:
» Automatic presentation on screen when application appears;
» Presenting disclosures on same page as application, if
application clearly and conspicuously indicates location of the
disclosures and that they contain rate, fee and other cost
» Providing a link to the electronic disclosures that cannot be
bypassed by the consumer before submitting the application;
» Locating disclosures on same web page as the application, not
necessarily on initial screen, immediately before the submit
Deleted Provisions from 2001 Interim Final Rules
• No requirement to deliver disclosures via email nor send an alert
to the consumer of their availability on a specific website;
• No requirement to attempt redelivery of an email disclosure that
has been returned undeliverable; and
• No requirement to keep disclosures posted on a website for at
least 90 days.
ESIGN / UETA Treatment for eNotes
• An electronic record that would otherwise be a negotiable promissory note under UCC
Article 3 may be a “transferable record.”
• The transferable record concept creates a structure that allows for the creation, storage
and transfer of an electronic promissory note.
Establishing Control of an Transferable Record
• ESIGN and UETA establish a parallel structure for the transfer and negotiability of an
electronic promissory note.
• Control can be thought of as equivalent to possession of a paper note plus delivery and
• A person has “control” of a transferable record, meaning the exclusive right to enforce
or transfer ownership of the underlying debt obligation, if a system “employed for
evidencing the transfer of interests in the transferable record reliably establishes that
person as the person to which the transferable record was issued or transferred.”
Safe Harbor for Meeting Control Requirement
• Six safe harbor elements:
» Single authoritative copy exists that is unique, identifiable and unalterable without
» Authoritative copy identifies the person asserting control as either to whom the
transferable record was issued or the issuer.
» Authoritative copy is communicated to and maintained by the person asserting
control or its designated custodian.
» Copies or revisions that add or change an identified assignee of the authoritative
copy can be made only with the consent of the person asserting control.
» Each copy of the authoritative copy and any copy of a copy is readily identifiable
as a copy that is not the authoritative copy.
» Any revision of the authoritative copy is readily identifiable as authorized or
• ESIGN and UETA Record Retention Requirements
• ESIGN and UETA allow copies of contracts and state and federal disclosures to be
retained electronically so long as the contract or other record:
» Accurately reflects the information set forth in the contract or record;
» Remains accessible to all persons who are entitled to access by statute, regulation
or rule of law for the period of time required by law in a form that is capable of
being accurately reproduced for later reference, whether by transmission, printing
• Electronic records meeting these requirements can meet “original” requirements.
• Consequences of failure to retain appropriately:
» May not satisfy regulatory writing, delivery or signing requirements;
» May not be admissible in court
High Level Identification of Risks and Mitigation