This article originally appeared in the November 2018 edition of National Mortgage Professional Magazine.
In the fallout from the 2008 financial crisis, courts across the United States were inundated with litigation challenging the legitimacy of mortgages, notes, and the records purporting the transfer or assign them. Such claims included asserting that endorsements of promissory notes were not enforceable, claiming assignments of mortgages were executed without authority, and allegations that the note, mortgage, or associated disclosure documents were neither presented to nor signed by the borrowers. In recent years, as the economy appears to have improved, much of this litigation has died down. However, it does not take much imagination to assume that if and when the next economic downturn hits, some borrowers may again find themselves in default on their mortgage obligations, and in turn may seek to challenge the enforceability of those agreements.
As eMortgages and eNotes continue to gain traction across the United States as an acceptable format for originating mortgage loans, lingering in the background is the issue of how these records might be treated by the courts in the event a borrower eventually attempts to challenge them in court. Given that challenging the enforceability of mortgage loan records was a common tactic in the years following 2008, it stands to reason that the increased use of eMortgages and eNotes will generate a fresh set of challenges to be employed by borrowers in default in order to attempt to avoid their obligations. As such, lenders, servicers, and investors seeking to originate, acquire, or service eMortgages and eNotes should be mindful of how these records could be treated by the courts, and should implement systems, processes and procedures now to insure they will have the necessary evidentiary record in place should such litigation come in the future.
UETA, E-Sign, and the Establishing the Validity of Electronic Signatures
The implementation of eMortgages and eNotes is made possible in part by a series of laws concerning the use of electronic signatures. The two primary sources of authority are the federal Electronic Signatures in Global and National Commerce Act, 15 U.S.C. ch. 96 (“E-SIGN”), along with various state adaptations and permutations of the Uniform Electronic Transactions Act (“UETA”). In very broad terms, these two statutory schemes provide, subject to certain exclusions, that records and signatures may not be denied legal effect, validity, or enforceability solely because they are in an electronic form or because an electronic signature or electronic record is used in their formation. Additionally, E-SIGN and UETA permit the electronic transfer of certain payment instruments, such as promissory notes, without traditional requirements such as an original paper copy continuing original signatures and endorsements. All states except for Illinois, New York and Washington have adopted UETA, but each of those three states has its own laws recognizing electronic signatures.
Those courts applying E-SIGN and UETA generally have interpreted the statutes broadly to hold that these statutes permit electronic signatures to be satisfactory in any scenario that traditionally required an original signature. For example, Barwick v. Gov’t Em. Ins. Co., 2011 Ark 128 (Ark. 2011)...
