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For all the encroachment of digitalization by the likes of Zillow and Quicken Loans, the business of selling real property has remained a resolutely hands-on, face-to-face field. Until now, when COVID-19 has shoved a stick in the spokes of practically every aspect of a real estate transaction—from showing property, to inspections, appraisals and mortgage loan approvals.
Perhaps no part of the process has been affected more than closings. Traditionally, in most cases, a real estate closing has involved the buyer, seller, agents, closing officer and an attorney or two gathering in a title company closing room. After inspecting and hand-signing stacks of documents, a handshake seals the deal and the keys are handed over.
Not any more. In all but a handful of states, recommendations or outright orders to stay home make it difficult to get people to even be in the same room with anyone other than immediate family. Travel restrictions trap parties on the wrong side of the state line or international borders.
While it’s long been possible to conduct some real estate closings without the parties even being in the same state—using overnight mail or couriers—signatures still have had to be notarized by human notaries at each end. Now with notaries unable or unwilling to meet face-to-face with signers, this routine but essential step has suddenly become a major obstacle to closing a deal.
Assuming all the hurdles are cleared, the fact that courthouses across the country have closed to protect employees makes recording a deed yet another bar to jump over. If no one is in the courthouse, paper deeds and mortgage documents can’t be received and recorded. Until a property’s change of ownership is recorded, there’s a gap in the title record. That gives title companies pause when it comes to issuing title insurance policies.
Closings have always been confusing and intimidating to many buyers and sellers, who may attend only a couple during the course of their entire lives. But the current situation has had even veteran real estate professionals off-balance and scrambling to come up with appropriate workarounds. Naturally, since nobody gets paid until the deal closes, they have done just that.
The National Association of Realtors, the American Land Title Association, Freddie Mac, Fannie Mae and numerous real estate law experts have all issued guidelines and suggestions for how to conduct real estate closings in the currently changed buying and selling environment. While there are a lot of ways people are approaching this challenge, one thing they’re not doing is business as usual.
The COVID-19 Close
One of the ways social distancing concerns are being dealt with is “the curbside close.” In this, parties to the transaction drive to the title office but remain parked outside in their vehicles. A closing officer walks up to get the parties’ driver’s licenses or other identification. The closer presents loan and closing documents and collects cashier’s checks if they’re being used. If necessary or desirable, attorneys are available to review documents.
Another approach is “the onsite close.” Parties to the transaction meet at the home being transferred. They maintain proper social distancing and may wear face masks, gloves or other personal protection. They may be asked to sign affidavits that they are not running a fever, have not recently traveled from any COVID-19 hot spots, or been exposed to the virus through an ill family member. To further protect participants, signings may take place through a window.
Electronic signing is a way to gather the needed John Hancocks that poses no risk of infection, as the parties never meet in person. DocuSign and other electronic signature tools are already used for many real estate documents. National legislation ensures that electronic signatures on documents will hold up in court. In some jurisdictions, however, recording deeds and mortgages still must be done with a physical pen in ink. In these cases, documents can be ferried to signers and delivered to the courthouse after signing.
Notarizing is a tougher stumbling block. Just over half of the U.S. states do not recognize remote online notarization, which otherwise lets notaries witness and notarize signatures without being present. The process usually employs a live two-way video conference to allow notaries to check signers’ identification, witness signatures and apply the notary confirmation remotely.
Since the coronavirus crisis erupted, Congress has been considering bills that would make remote notarizing legal nationwide. While nothing has been enacted nationally, a number of the state governors’ executive orders in emergency response to COVID-19 include options for temporarily offering electronic notarization.
Electronic recording, if universally available, would render moot the problem of getting documents recorded when the courthouse is unable to accept paper documents. Unfortunately, not every state has adopted legislation authorizing digital document recording. Even where it is allowed, not every courthouse recording office is set up to do it.
When electronic recording of deeds and mortgages is not available, the title insurance companies are exposed to a gap in the chain of ownership. This requires the title companies to insure the title across this gap between closing and recording.
As a result, the title companies may require parties to a transaction to sign an expanded gap indemnity to protect the title company against potential loss. Of course, this can expose real estate buyers and sellers to additional risk of their own, so real estate attorneys are advising caution before signing indemnities that might be too broad or unclear.
COVID-19 Closing Needs
Is all this really necessary? Not if the parties to the transaction, including the buyer, seller, closing officer, agents and notaries are willing and able to take the risk of acquiring or transmitting a coronavirus infection. And some title companies continue doing it more or less the old-fashioned way, in a meeting room at their offices. There still are some significant differences, however.
Here’s how Jean Partridge, president-elect of theNew York State Land Title Association, describes it: “When sit-down closings do occur, the attendees have been pared down from the traditional group, and everyone in attendance wears gloves and masks. In most cases, multiple rooms are utilized, with the sellers and their attorney in one room and the buyers and their attorney in another room. The closing rooms are always disinfected pre- and post-closing, and all disposal instruments utilized during the closing process, such as pens, are thrown away or taken with each signer.”
Besides an ample supply of disinfectant wipes, one thing the real estate industry needs is enabling legislation. Remote online notarization legislation has been introduced in Congress that would authorize every U.S. notary to work remotely and specify the necessary authentication procedures and tamper-resistant technology.
Both the House and Senate versions of the SECURE Notarization Act are refreshingly bipartisan. Backers including the American Land Title Association anticipate passage of it or something like it as soon as can reasonably be expected. However, lenders still have to agree to accept remote notarization, and that may take additional time.
The Future Close
Even assuming the COVID-19 pandemic ebbs and life gets back to some new version of normal, it seems likely that the real estate closing process has been changed forever. The completely digital transaction is something that has been long sought without ever quite arriving. COVID-19, most likely, will push that process through to completion.
The requirement to go to a title office for many closings may not completely be a thing of the past. Many home buyers and sellers will no doubt be happy to say goodbye to the closing as we’ve always known it. The impersonal atmosphere, the daunting stack of documents to be signed and the ever-present nagging worry that some vital and probably costly aspect of the transaction is being neglected add little to the experience. However, first-time homebuyers may still relish the experience, such as it is.
For the rest, closing may well be improved by being able to take time to examine documents at home and sign them remotely with a notary who could be located anywhere. The feeling of relief when the procedure is finally complete and the excitement of transferring or receiving the keys to the property may be lost. But some peace of mind may be gained.
One thing seems nearly certain: The era of the handshake deal is in the past.