What is Electronic Signature?
Electronic signatures are gaining momentum in the real estate industry. Although some financial institutions are reluctant to accept electronic signatures on all documents related to a real estate transactions (such as loan documents and REO sales), the real estate industry is gradually moving towards this standard which allows for greater accessibility and convenience. As electronic signatures and other aspects of a “paperless” real estate transaction become more widespread, it will become increasingly important for real estate agents to have an in-depth knowledge of electronic signatures and electronic documents.
What is an electronic signature?
An electronic signature is (1) an electronic sound, symbol or process (2) attached or associated with a contract or other document and (3) adopted by a person with the intent to sign. There are different types of electronic signatures.
What is a digital signature?
A digital signature is a type of electronic signature. There is a digital code attached or embedded in the electronic document. Not only does it uniquely identify the signer, but it ensures the original content of the document and uses encryption technology to prevent alteration. Digital signatures permanently secure the identity of signers and the document’s contents. The signer’s digital identity is referenced within the digital signature at the time of signing. Once it has been signed, the document’s integrity is protected. An alteration of the original document will invalidate all digital signatures on the document and bring into question the integrity of the document’s contents. Digital signatures provide a higher level of security than other types of electronic signatures.
Are Electronic Signatures Legal in California?
Yes. The Uniform Electronic Transactions Act (UETA) (state law) and the Electronic Signatures in Global and National Commerce Act (ESIGN) (federal law) state that a document or signature cannot be denied legal effect or enforceability solely because it is in electronic form. Both laws allow electronic signatures to be used in real estate transactions.
How Do I Prove a Document was Electronically Signed?
Although rare, legal disputes can arise from time to time concerning the authenticity of signatures and content within documents in real estate transactions. Such disputes typically involve:
• Contract repudiation - A buyer or seller claiming that he or she did not in fact sign or authorize a contract; and
• Fraud or mistake - A buyer or seller claims that the content of a document is different from the document that he or she actually signed.
The authenticity of electronic signatures and documents can be proven in a variety of ways. In fact, electronic signatures can be authenticated in ways that wet ink signatures and traditional paper documents cannot. A major advantage to using an electronic signature software program like zipLogix Digital Ink® is that such software programs typically create automated records that keep track of important information like when a document was signed, what computer a document was signed from and what the document looked like when it was signed. These automated records can be used together with a description of how the electronic signature program works to provide the proof a party to a dispute needs. In this section of the website, we’ll call the automated records together with the description of how an electronic signature software program works “System Information.” System Information can be obtained from your electronic signature service provider and can include the following items:
1. Signer authentication - Information about how a signer’s identity is verified prior to signing or accessing a document. The software may force the signer to access the software via a link sent to the signer’s personal email account or force the user to verify his or her identity by providing personally identifiable information, such as a social security number, birthdate, etc. A robust authentication procedure makes it less likely that someone can fraudulently pose as a signer.
2. Activity logs - This can include information about what computer the software was accessed from, what part of the software or web pages were accessed by the signer, what actions were taken by the signer in each part or on each web page and when those actions were taken.
3. Document “metadata” - Metadata is information that describes, helps locate, or otherwise makes it easier to find, use and manage data and electronic documents. For example, metadata related to an electronically signed document file could include when the document was viewed and from where, when it was signed, where it was sent afterward and whether the document was modified.
4. Data security - Information about how the software is physically and electronically secured to prevent tampering after a document is signed. For example, the software may use encryption to produce “hash values ” that are associated with a signed document. If so, any change to the document would change the “hash value” and show that the document has been tampered with.
5. Audit procedures - Information about the audit procedures the software uses to ensure that the software complies with all of the above information. This helps to show that the software’s records are reliable.
6. Retrieval - Information about the procedure by which all of the above was obtained. It should be obtained in a reliable manner by individuals with knowledge of the systems and procedures.
While System Information is particularly useful to authenticate electronic signatures and documents, there are other methods of validating or invalidating electronic and traditional wet ink signatures. The chart below provides a non-exhaustive list of the more common materials, testimony, and facts that can be collected and used to prove that a party signed a document, or that the document was or was not altered. As you can see, in many cases it may be easier to find the proper evidence for electronic signatures and documents than for traditional wet ink signatures and paper documents.
|Authentication Method||Location of Authentication Materials||Available for Electronic Signatures?||Available for Wet Ink Signatures?|
|1||System Information||Electronic signature system provider||YES||NO|
|2||Declaration of Custodian of Records||Entity that stores signatures or signed document in the ordinary course of business (e.g., Electronic signature system provider)||YES||YES|
|3||Testimony of Signing Party||Signing party||YES||YES|
|4||Testimony from a person who witnessed the signature||Must locate witness||YES||YES|
|5||Circumstantial evidence that a party signed the document – e.g., did the signer behave as if he or she signed the document?||N/A||YES||YES|
|6||Non-expert opinion of a person familiar with the signature of the party||Must locate witness||YES||YES|
|7||Signature comparison by the jury or an expert||Expert testimony or rely on jury determination||YES||YES|
ACCEPTANCE OF ELECTRONIC SIGNATURES
- Bank of America - Electronic Signatures Reference Guide, September 2012
- Federal Housing Administration - FHA – Mortgagee Letter 2010-14
- Fannie Mae - Selling Guide Part A, Subpart 2, Chapter 5
- Freddie Mac - Single Family Seller/Servicer Guide Volume 1, Chapter 3
- California Department of Corporations - Escrow Bulletin, March 2009
• Requires verification of authentication and use of a consent form. C.A.R. publishes a consent form entitled Optional Verification of Electronic Signature for Third Parties (OVS).