eClosings in North Carolina – A Primer on Electronic Closings in Our State

Part 1 of 2

I’m very excited to have been appointed to the North Carolina Electronic Mortgage Closing Advisory Committee by the NC Secretary of State for 2023. As part of my appointment, I very much look forward to meeting with leaders across the state to advance eClosings in our state. The group is comprised of lenders, bankers, insurers, notaries, technology providers, registrars, real estate agents, and attorneys, from all over the State of North Carolina—it is certainly an honor to have been appointed, and Atlas Orange is very proud to be on the front edge of a wave of change that is looming over the real estate closing industry.

Atlas Orange has been conducting eClosings over the past year, but as many attorneys, lenders, and agents will tell you, much of the chatter about eClosings has been nothing more than talk. While we have completed quite a few eClosings over the last year, the truth is that the prevailing medium for a real estate transaction still involves a half-ream of paper and an hour of our client’s time. Personally, I have been told by folks for the last seven years that “it is coming”, and it has only been very recently that we have seen it, and even still in a small percentage of the closings we complete (maybe 5% of our closings, and almost only in refinance closings). We are not aware of any other closing attorneys in our locality that have readily adopted eClosings as a main part of their practice. We honestly think this is just a product of demand—nobody (lenders, agents, and borrowers) is asking for eClosing, so why would we see it adopted?

We think things are changing though, and for real this time. In July of this year, we will see the final approval of Remote Electronic Notarization (sometimes used interchangeably with Remote Online Notarization). Leading up to that change, we have seen a growing number of lenders and banks use electronic notes in closings (typically a “hybrid” closing) and an increase in the absorption of electronic means in our industry.

So, in anticipation of a year of change associated with eClosings, this post is part one of a two-part series on electronic closings in our state. This post will be focused on the past and present, and the next post will be focused on the future of e-closings in our state.

A Brief History

We trace the electronic closing movement in our state back as early as 1998, when North Carolina adopted the 1998 North Carolina eCommerce Act, followed by the 2002 NC Uniform Electronic Transactions Act (UETA), which supported/encouraged eSignatures for all state agencies and local governments—this was the first step in the adoption and acceptance of Docusign and other non-notarized electronic signatures. From there, the state began work on connecting the three most critical components necessary for an electronic mortgage: electronic signature, electronic notarization, and electronic recording. Importantly, in 2005, the State passed the Uniform Real Property Electronic Recording Act, which paved the way for county registrars of deeds to accept requests to record electronically. Concurrently, the State passed the 2005 Electronic Notarization Act, which gave us the early framework for what we call “IPEN” or in-person electronic notarization. At the time these two laws were enacted (and still), the foundation laid by these three laws was groundbreaking. Still, many states lack the legal infrastructure to support the three critical parts of an electronic mortgage: e-signature, e-notarization, and e-recording.

Of course, the financial world and industry of real estate closings took an enormous uppercut in 2008—the impact of which was really felt for close to a decade. While the framework laid dormant, it was in 2017 that the North Carolina Secretary of State reinvigorated the NC eClosing Initiative, which piloted e-Closings in our state. The first fully-electronic closing was completed in the State of North Carolina in 2017, pioneered through a partnership between North State Bank, Investors Title Insurance Company, DocMagic / WorldWideNotary, and various other advocates. This closing was completed as an “IPEN” closing, with the electronic notary physically present with the signors of e-notarized documents.

In the following two years, from 2018-2019, great strides were made in the frequency and absorption of electronic notes in the marketplace. While a vast majority of closings were still conducted in the old-fashioned manner, we saw other institutions building infrastructure for adoption of the IPEN eClosing as a mainstay in our industry (for example, see this presentation from the Secretary of State about Truliant eClosings).

The Effect of COVID on Electronic Mortgages

Nothing was more ground-shifting in our industry than the onset and repercussions of the COVID-19 pandemic. There were moments during the pandemic when there was genuine doubt about whether Registrar of Deeds offices were going to stay open, and there were a flurry of changes brought about by the need to adapt closings to make them safer for all participants. While the Secretary of State and NC State Bar had a strong stance on the safety and security of in-person notaries prior to COVID, the advent of the pandemic reset opinions across the entire industry about the value of “Remote Online Notarization”, among other things.

On the heels of the pandemic, the State of North Carolina adopted Temporary Emergency Video Notarization—this allowed for a special process whereby the notary could perform oaths/affirmations and acknowledgments over video conference technology. This approach required an “EVN Certificate” and some other safeguards, consistent with NC law. While there were some notarizations that occurred under these guidelines, my experience was that our title insurance companies were (understandably) extremely wary of using the EVN protocol. Simply, there were too many security risks involved that were not addressed by the temporary technology in place. The system was just too ripe for fraud or misstep.

In-Person Electronic Notarization versus Remote Electronic Notarization

Just to draw the distinction clearly as between the three different types of electronic closings commonly used in our state…

Hybrid Closings

-          These closings are a mix of electronic and on-paper.

-          Typically, the borrower will logon to their computer the day of closing and complete the majority of closing documents online through the lender’s portal/system. They will complete every document that is not notarized, which typically includes the promissory note for the mortgage.

-          The borrower will still come to the closing attorney’s office or otherwise meet with a notary to sign paper copies of all documents that must be notarized.

-          Pros: closings are shorter because less has to be signed; e-notes are easier and more consistent for the lender to verify and sell on the secondary market

-          Cons: still require paper and still require that the client come in and sign before the notary

IPEN – In-Person Electronic Notarization

-          All documentation for the closing is kept electronically.

-          A certified electronic notary physically meets (in-person) with the borrowers for closing.

-          Typically, the notary will use their computer/tablet to walk the client through the documents that are signed at closing. All the documents are electronically signed by the borrower, and then the computer/tablet is handed over to the e-notary to electronically notarize.

-          Pros: all of the benefits of the hybrid above, plus the closing experience can be more convenient for the client, since the e-notary comes to them wherever they are to complete documents; no paper at all in the process for the closing attorney to return to the lender; minimal risk of document error (missed signature or incorrect notary) because the software won’t allow the closing to complete while there are errors on the documents

-          Cons: still requires the notary to be physically present with the borrower

REN - Remote Electronic Notarization

-          Everything completed at closing is done so electronically.

-          An electronic notary connects with the borrower through a secure online portal, completes extensive identity verification of the borrower, and watches as the client signs all of their documents electronically.

-          Pros: all of the benefits of the above-two styles, plus no physical requirement—the electronic notary can complete the closing from anywhere in the State; the other parties to the transaction can be located anywhere, as long as the notary is in the State of NC

-          Cons: requires a reliable internet connection and the means to electronically verify the identity of the borrower

Current State of Affairs

As of this writing, REN has not yet been implemented in the State of North Carolina, but it has been approved effective July 1, 2023. If you consider the differences between the three types of electronic closings above, you can see how this would potentially flip the real estate closing on its head in the coming decade.

In Part 2, we’ll talk about the legislation that is in place to implement REN, the available guidance from the Secretary of State about how REN will operate, and the future of eClosings in the State of North Carolina.

-Joe