Pen and Paper Not Required

Virtual closings make the real estate closing process faster and easier.

Pen and Paper Not Required‘Virtual Closing’ speeds up, simplifies the real-estate closing process  
By Margie Plunkett

The closing, the final step in buying or selling a home, has always been identifiable by the reams of paper carefully stacked and marked where signatures are required. But electronics are clearing the table of the tradition.

At offices such as Veritas Title & Escrow Co. in Seagrove Beach, the evolution is apparent in a "virtual closing" that can take 15 minutes instead of an hour. Paper documents are absent — everything is done on the computer.

"We can actually go through the entire process without using a pen and a piece of paper," said Veritas owner Walter Moss.

The virtual closing still is uncommon but is growing gradually. While it is seen as a time- and money-saver, getting companies — including mortgage lenders — online has been a slow effort, restrained by concerns about fraud and a general resistance to change. Pioneers in electronic mortgage transactions have emerged, however, and consumers who have experienced virtual closings are becoming more accepting.

Barney Manuel, a 71-year-old real estate agent, recently participated in his own virtual closing at Southern Escrow & Title Co. of Destin when he refinanced his Miramar Beach home with AmTrust Bank.

"It was painless," Manuel said, although at first he thought a virtual closing might require the assistance of a tech-savvy grandchild. The real estate agent for Jolly Bay Co. in Freeport says he definitely recommends it.

The paperless closing has several advantages, one of which is the fact that documents are available to the appropriate parties — buyer, seller, lender and title company — in advance of the closing. The parties are issued passwords so that they can access documents and review them from the comfort of their own homes or offices. That gives them more of an opportunity to become familiar with the documents in preparation for closing and to identify inaccuracies or other changes needed.

"Say it’s the middle of the night and you pop up in a sweat in bed, saying, ‘Oh, my God, did we get the appraisal?’ You can answer that question immediately," said Veritas owner Moss.

At the closing, there is no need to keep track of paper or check and double-check that the documents have been signed. Everything is done electronically.

"The software won’t let us close until all the signatures are signed," Moss said.

There are a couple of different formats for signatures.

"All they have to do is tap on the screen where they’re supposed to sign and sign a signature pad at the end, and it applies it to all the documents," Moss said.

Other systems require the signer to click on a button to accept disclosures about the page; that click serves as a signature. In most cases, attendance at the closing is still necessary so that the signature can be notarized.

When the closing is completed, documents are sent to the clerk of courts’ office to be recorded.

"Florida is one of a handful of states that actually accept this process, these electronic signatures," Moss said.

But not all counties are set up to receive documents online. In Walton County and others that have done so, transmitting documents simplifies the process and can save money on the costs of labor and supplies. Paper documents delivered to the county clerk must be scanned into the system.

Totally electronic closings are rare, with the number of court clerks online and electronic mortgage lenders still small.

"It’s not truly possible for us to be totally virtual yet, because the electronic signature is approved in Florida but the ability to record electronically is a county-by-county decision," said George Brannon Jr., senior vice president of Southern Escrow, where Barney Manuel’s closing was held.

While Veritas Title has conducted virtual closings for two years, they still represent only about 1 percent of closings, owner Moss said.

Part of the reluctance has been a natural resistance to change. Consumers are cautious because they fear identity theft. Moss counters, though, that at Stewart Title — the Houston company Veritas Title works with — information is heavily encrypted and there have been no problems.

Attitudes will change as generations more accustomed to computers come of age, hastening the adoption of virtual transactions.

"As the next generation takes the reins, they’re so adept and have an expectation that they can do everything via computer rather than a piece of paper," said Doug Johnson, vice president of risk management policy for the American Bankers Association in Washington, D.C.

From the industry perspective, some lenders are concerned that electronic documents don’t fulfill requirements for mortgages to be sold on the secondary market.

"There’s hesitation naturally in the market to want to get the traditional wet ink signings of all the documents," Moss said. "The holdup is with the large financial institutions that are going to be buying these loans in bulk. We’ve had more success with community banks and cash deals."

Pioneers have emerged among lenders.

"AmTrust is the only large lender out there with the ability to do e-closings," Southern Escrow’s Brannon said.

AmTrust Bank of Cleveland is No. 1 in making electronic mortgages listed on the Mortgage Electronic Registry Systems (MERS), a required registration that now includes about 55,000 mortgages, according to the Mortgage Bankers Association of Washington, D.C. The bank offers mortgages in all states.

"We close more loans with eNotes than everyone else in the industry combined," AmTrust said in a statement. The bank introduced the eNote, its first paperless legal document, in 2006.

AmTrust’s electronic system does not preclude it from selling mortgages on the secondary market, according to Stephan Trayte of AmTrust.

Government agencies such as the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration are examining the electronic process and have been taking a cautious look at what they will accept, according to Harry Gardner, vice president of industry technology at the Mortgage Bankers Association.

HUD, which has the authority to prosecute mortgage fraud, has been cautious because electronically, it would not have the forensic abilities to analyze signatures in the event of a fraud, Gardner said.

"The interesting side note, in general, is that the electronic note has the capability to be more secure than a paper process if a loan is closed electronically and registered," Gardner said. If someone is trying to take two mortgages out on the same property, it will show up immediately under the MERS electronic system, he said.

The Mortgage Bankers Association had forecast the adoption of virtual transactions by about 2007, but the process has three to four years more to go, Gardner said.

"It’s been a slow growth trend," he said.

Electronic mortgages have grown. Over the past two and a half years, the number of electronic mortgages lenders make has risen from five to 10 each month to a total of 300 to 500 a month, Gardner said.

The crisis in the housing market has played a part in slowing everything down, he said.

"No one wants to take on major IT changes during a downturn of business," Gardner said.

The trade association expects that virtual transactions will be common in three to four years and that companies set up to accommodate them will have the upper hand.

"Ultimately there will be a tipping point where there will be a competitive disadvantage — and they’ll be able to run rings around you," Gardner said.

Lenders & Investors Integrated with MERS e-Registry

As of 5/09

In Integration
Bank of America (LaSalle)
S. Fla. Educational CU
ENT Federal CU
S. Fla. Federal CU

Piloted
First Collateral
Green Light        
In Production
1st Advantage
1st Source Bank
American First Credit Union
AmTrust
Boeing Employee Credit Union
Century Bank
Fannie Mae
First Houston
Flagstar
Freddie Mac
GMAC
Navy Federal Credit Union
TIB – The Independent Bankers Bank
Wells Fargo
Dyck-O’Neal, Inc.
Bank of America
CitiMortgage, Inc.
Fidelity, Wichita Falls

Electronic mortgages

Most virtual closings are hybrids with elements like mortgages and recording at the county clerk’s office often still not electronic. Following are some statistics on eNotes on the Mortgage Electronic Registration System (MERS) and eNotes:

eNote registrations since June 2005: 108,634

Single day high since June 2005 (4/24/09): 947

Number increase since 5/17/09: 3,188

Average daily registrations since 5/17/09: 638

e-Recording Statistics

Number of States eRecording:  27 (+ D.C.)

Florida counties eRecording: 15 of 67 counties, or 22.39 percent

SOURCE: mortgagebankers.org