LEGAL CORNER: The ‘Remote’ Closing and the Future of Remote Online Notarization
John Dolgetta, Esq. | August 10, 2022
In New York, as in many other states, the closing process is a long and arduous one and the new Remote Online Notarization (“RON”) law [see https://bit.ly/3SIBHX8] provides one of the tools to speed up the process in the future. Remote notarization laws in New York and across the nation move the closing process one step closer to a full “remote” closing. While more and more people are working remotely and attending meetings and events remotely, it only makes sense that a real estate closing move to a “remote” setting as well.
The Closing Process in New York
A closing in New York, which involves financing, customarily takes 60, 90 and sometimes up to 120 days to complete from contract signing to closing. In many areas in New York, before a contract is even prepared, purchasers must first complete their inspections and then receive and review the results of those inspections, which could take several days, especially where a radon or well test is involved. If issues come up, the process could take even longer. Once the results are received, and all of the issues, if any, are addressed, only then is the contract prepared by the seller’s counsel and sent to the purchaser’s counsel. The negotiation process between the attorneys takes several days as well. A seller’s attorney will customarily attach a rider to the form contract. The purchaser’s attorney also prepares a purchaser’s rider. After the contract and all of the riders are negotiated, finalized, and executed by the parties, the process officially begins.
The Loan Application Process
It is at this point that the purchaser usually begins the mortgage application process. While many purchasers begin the loan process before the contract of sale is signed, many lenders will not officially submit the loan application until they have a fully executed contract. This is why it is very important for purchasers to submit all of the required financial documentation (e.g., tax returns, W-2s, paystubs, bank statements, etc.) to their lender. Submitting all of the required documentation in advance saves valuable time and can shorten the period of time to obtain a mortgage commitment from the lender by several days, and even weeks. Most contracts require that a purchaser obtain and deliver a mortgage commitment to the seller within 30 days of the contract date. Although, in some instances, the lender can take up to 45 days or more.
Ordering the Title Search on the Property
At the same time a fully executed contract is exchanged by the parties, the purchaser’s attorney places the order for a title search on the property and a new survey, if one is not available. The title search usually takes several weeks to be completed. Many times, the title and lien search component of a title search comes back fairly quickly. However, the municipal search component (i.e., the search of the town records relating to violations, certificates of occupancy and/or compliance, and other municipal records) can take up to two to four weeks (or more) due to lingering delays from the COVID-19 pandemic arising from a lack of personnel and remote work schedules, as well as other reasons. Additionally, if a purchaser is required to order a new survey, this can add an additional three to four weeks to the process.
Once the new survey and the title search are received, it is the hope of the parties that no issues come up. Unfortunately, however, many times this is not the case. In the event violations, boundary line issues, liens, pending lawsuits, tax liens, old mortgages (that were never satisfied), illegal construction items (i.e., decks, extensions, fences, etc.) or other issues come up, then this could certainly add several weeks, if not months, to the entire closing time frame.
Finally, the Closing!
After all of the loan, title and municipal issues are dealt with, the parties are finally ready to schedule the closing. Once the lender issues the “clearance to close” or “CTC,” the parties are then ready to schedule the actual closing. Prior to the outbreak of the COVID-19 pandemic, most closings required that all of the parties attend the actual closing. While some sellers would provide their attorney with a power of attorney to close on their behalf, most purchasers, as well as all other parties (i.e., attorneys, bank attorneys, title closers, etc.) were required to attend the actual closing in person. The COVID-19 pandemic changed all of this overnight.
The “Remote Closing” is Born
In the spring of 2020, the COVID-19 pandemic forced the real estate closing process to take an unexpected turn. The term “remote closing” was born. While not the only catalyst, the “remote closing” was one of the key factors that assisted the real estate market with its unprecedented rebound. Born out of necessity and safety, the remote closing allowed parties to continue to close without actually having to attend the closing. Attorneys scheduled Zoom conferences, mailed closing documents and packages out to clients to have them pre-signed, title closers and attorneys picked up and hand-delivered documents to the parties to facilitate a “remote closing,” bank attorneys met with borrowers and their attorneys to have the loan documents signed, all done to keep everyone safe and sound during one of the most dangerous and deadly pandemics in history. During this time, one critical and early executive order assisted tremendously with the “remote closing” process, Executive Order 202.7.
Executive Order 202.7: The Predecessor to NY’s Remote Online Notarization Law
At the start of the pandemic, then Gov. Andrew Cuomo issued Executive Order 202.7, which allowed notaries to conduct remote ink notarizations during the pandemic. Unlike the requirements of RON, Executive Order 202.7 allowed notaries to conduct notarial services by simply using real-time video. An individual would simply be required to present valid identification via a video conferencing platform (e.g., Zoom, FaceTime, etc.) and then send the signed document to the notary so that the notary could notarize the original. The remote notarization allowed by Executive Order 202.7 allowed for parties to remain in the comfort and safety of their own home, and made the closing process a bit easier and a bit quicker. The original Executive Order 202.7 also required that the individual be located in the State of New York when the notarization took place.
The New RON Law and the Interim Use of the RIN Process
The original RON legislation [Senate Bill 1780-C] [see https://bit.ly/3PgPvVA] that was signed into law in December 2021, and which was supposed to take effect in June, 2022, did not permit the use of RINs. However, in February 2022, Senate Bill 7780 [see https://bit.ly/3JGivFj] was passed making key amendments to Senate Bill 1780-C. It moved the effective date of the RON legislation to Jan. 30, 2023, and also allowed for the interim use of the RIN procedure until Jan. 30, 2023. The amendment also allows for Notaries during the RIN interim period to perform notarial acts without being required to pay additional fees or to register with New York State. However, when the RON law goes into effect in January 2023, Notaries will be required to register on a new New York State Registration Database and pay additional fees in order to be permitted to perform RONs.
The amendment to the RON and RIN procedures permits a Notary to notarize an individual’s signature even if that person is located out of New York State. Subsection (2)(H) of the newly added Section 135-C of the Remote Ink Notarization law provides that while the Notary must be physically located in New York at the time the notarization takes place, it further provides that:
“The principal may be situated in New York, outside of New York but inside the United States, or outside the United States, provided:
(1) the record is to be filed with or relates to a matter before a public official or court, governmental entity, or other entity subject to the jurisdiction of the United States; or
(2) the record involves property located in the territorial jurisdiction of the United States or involves a transaction substantially connected with the United States.”
Senate Bill 7780 provided additional procedural requirements and best practices that were not part of the original Executive Order 202.7. Senate Bill 7780 requires that for both RONs and RINs, the Notary must utilize real-time audio-video when notarizing a document and must make an audio-video record of the remote notarization and maintain a record of each notarization for 10 years. Further, the notary must confirm the identity of the individual signing the document by having: (a) personal knowledge of the individual, (b) by requesting that the individual provide valid identification or credentials, analyzing the credentials, and conducting identity proofing of the individual, or (3) by having a credible witness confirm identity. The Notary must maintain a contemporaneous journal of each remote notarization and will be required to produce the journal to the Secretary of State for inspection. The Notary must also prepare the following “Certificate of Authenticity” so that documents may be recorded with the County Clerk:
“Certificate of Authenticity
State of New York )
County of ) ss.:
On this day of in the year , I certify that the signature page of the attached record (entitled ) (dated ) is a true and accurate copy of the signatures affixed to an electronic record printed by me or under my supervision. I further certify that, at the time of printing, no security features present on the electronic record indicated any changes or errors in an electronic signature in the electronic record after its creation or execution.
(Signature and Title of Notary Public)
(Official Stamp or Registration Number, with expiration date of the Notary Public’s Commission)”
The Secretary of State is authorized to promulgate regulations establishing minimum standards for various aspects of remote notarization, as well as for any other matters necessary to administer the provisions set forth in Senate Bill 7780.
Remote Notarization at the Federal Level
On July 27, 2022, the U.S. House of Representatives passed various bills which included the Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act [see https://bit.ly/3SGDaNm]. The SECURE Notarization Act seeks to allow for immediate nationwide use of RON. It also seeks to create federal minimum standards for its use nationwide and also to provide certainty for the interstate recognition of RON. The SECURE Notarization Act will go a long way in providing lenders the comfort to allow for remote notarization in connection with loans, as well as protecting individuals and allowing those individuals who are not able to attend a closing for various reasons to be able to utilize RON in connection with the real estate closing.
Remote Notarization: Simplifying the Closing Process
While there is still a way to go before the real estate industry fully embraces and implements remote notarization into the closing process, once it does the possibilities are limitless. Remote notarization can certainly speed up the closing process by eliminating the inefficiencies of having numerous individuals attend a closing just to sign documents before a Notary. The long and onerous closing process could be made much easier and remote notarization brings the real estate industry one step closer to eliminating the physical closing altogether.