E-Signatures and Remote Notarization in the Time of COVID-19
In Short
The Situation: The novel coronavirus (COVID-19) has prompted a sharp rise in electronic transactions, but contracting parties must be mindful of the requirements for electronic signatures and remote online notarization.
The Problem: While electronic signatures are valid in most circumstances, there are important exceptions, and only 22 states currently permit remote notarization by statute.
Looking Ahead: The legal landscape is evolving quickly. Two U.S. Senators introduced a federal bill to immediately allow remote notarization nationwide, and three states have already taken emergency action.
Electronic Signatures
Electronic signatures can take many forms, including PDFs, screenshots or photographs of "wet ink" signatures, digital signatures executed with the assistance of software, and typed names in emails or at the end of text messages.
Both federal and state laws provide that electronic signatures are valid and enforceable in most circumstances, but they impose certain requirements that should be front of mind for parties unaccustomed to their use. The two most important requirements are consent to transact electronically and intent to be bound. Courts will not enforce electronic contracts when there is no proof of this consent or intent. Contracting parties should therefore incorporate language explicitly consenting to the electronic transaction and affirming that the electronic signature—whatever its form—indicates a present intent to be bound by the contract. Additionally, steps must be taken to ensure the authenticity of the signature. To avoid potential disputes, parties should carefully document the efforts taken to confirm the signatory's identity and associate the signature with the document to be signed, which can often be done with confirmatory e-mails. The document also must be protected from alteration post-signature.
Not all documents may be signed electronically. For example, certain documents related to real estate transactions must still be signed in wet ink and acknowledged in person in order to be in recordable form. While 34 states have adopted legislation authorizing electronic documents and signatures for real estate recording purposes, that legislation does not require county offices to accept them, and many offices lack the technology required to do so. Additionally, financial institutions that require access to the Federal Reserve "discount window" may need to either pledge or hold wet ink promissory notes under the "Borrower in Custody" (BIC) programs of a certain Federal Reserve Banks; therefore, electronically signed loan documents may not be eligible for such programs.
Remote Online Notarization
On March 19, Senators Mark R. Warner (D-VA) and Kevin Cramer (R-ND) introduced the "Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act of 2020." If passed, the bill would authorize all notaries nationwide to perform remote online notarizations meeting certain minimum standards. The bill would not preempt state laws already permitting remote online notarizations if they met the Act's minimum standards.
Twenty-two states currently have statutes permitting remote online notarization in certain circumstances where the notary and signatory communicate via acceptable live audio-visual technology. Such statutes, among other requirements, may require notaries to keep records of remote notarization, including an audio-video copy of the performance of the notarial act. In response to the necessity (and in some instances, requirement) to transact business electronically due to COVID-19, the following states have taken emergency action to permit remote notarization.
- New York: On March 19, Governor Cuomo issued an Executive Order permitting remote notarization using live audio-visual technology. Those seeking notarization must present valid ID during the video conference and affirmatively represent that they are physically in New York State. Unlike similar state laws, the Order does not require notaries to keep a record of the notarization. The emergency provision remains in effect until April 18, though the Governor may choose to extend it.
- New Jersey: On March 19, the New Jersey Senate approved a bill that will permit remote notarization beginning in 90 days. Unlike Governor Cuomo's Executive Order, the bill does not require the individual seeking notarization to be located within the state. It also permits the notarial officer to confirm the individual's identity based on personal knowledge or an oath or affirmation from a credible witness appearing before the officer.
- Wisconsin: On March 18, the Department of Financial Institutions ("DFI") announced that, "until further notice to be given once this crisis abates," remote notarization would be permitted using four approved platforms. The DFI approved Notarize.com and NotaryCam (for use by the general public) and Pavaso and Nexsys (for use by title companies and in real estate transactions). Wisconsin enacted a remote notarization statute on March 9, but it will not go into effect until May 1.
Three Key Takeaways
- Contracting parties should include contract language that consents to electronic transacting and clearly acknowledges intent for the electronic signature to be binding. Audit trails will be especially important should litigation arise.
- Electronic signatures are not always permitted, so it is important to confirm their enforceability in a particular area of law before use.
- Lawmakers are taking emergency action to authorize remote online notarization, and Wisconsin and New York have imposed requirements different from those generally found in state laws. As and when more states take action, carefully evaluate the requirements they impose.
