Developing Law on eMortgages Including Electronic Evidence Considerations

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Developing Law on eMortgages Including Electronic
Evidence Considerations

• Margo H.K. Tank
• Buckley Kolar LLP
• mtank_at_buckleykolar.com
• 202-349-8050

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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, OCC).
• FHA eMortgage Requirements In process.

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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 signature.
• 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.

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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
• ESIGNs 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  superceded in whole or in part.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.

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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 record.
• 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 disclosures electronically.

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eMortgage Transaction Issues

• Authentication and attribution risk Thats
  someone elses signature, not mine!
• Repudiation risk Thats my signature, but Ive
  never seen this document!
• Alteration or retention risk Thats my
  signature, but this is not the same document I
  signed.
• 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

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Electronic Format and Delivery of Consumer
Disclosures

• 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 publicly
  affixed.
• For disclosures that are required to be in
  writing, ESIGN does not consider oral disclosures
  to be a valid form of electronic delivery.

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Federal Reserve Boards Rules

• Federal Reserve Boards 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.

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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 information
• Providing a link to the electronic disclosures
  that cannot be bypassed by the consumer before
  submitting the application or
• Locating disclosures on same web page as the
  application, not necessarily on initial screen,
  immediately before the submit button.

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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.

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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.

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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
  endorsement.
• 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.

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Safe Harbor for Meeting Control Requirement

• Six safe harbor elements
• Single authoritative copy exists that is unique,
  identifiable and unalterable without detection.
• 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 unauthorized.

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• 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 or otherwise.
• 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

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High Level Identification of Risks and Mitigation