REQUIRED READING: According to the Property Records Industry Association, the national standards-setting body for the land records industry, there are more than 3,600 recording jurisdictions nationwide. Real estate documents recorded with these entities establish a chain of title that is based upon the originality and authenticity of the paper documents presented for recording.
Many recording offices, realizing the needs of the marketplace and the technological feasibility, have developed a strong penchant to convert their traditional paper-based land recording systems to electronic form. However, only a relatively small number of recording jurisdictions have actually moved to electronic recording, have some sort of system for e-recording or are in the process of converting to e-recording.Â
Electronic recording redesigns the real estate recording process and introduces new technologies, changes office procedures, and includes, in many instances, a significant investment in resources and time. Electronic recording presents a unique opportunity to bring significant improvements to the recording process to create efficiencies, reducing costs for both the recorder and the document submitter.
The role of the recorder
Every land records office has some type of filing system and record archival storage system: paper-based, microfilm, digital image or a combination of some or all. E-recording is just one more available tool, using technology to submit, receive, review, record, archive and return real estate documents.
Because e-recording has been in existence for some time, it is much easier today to locate recorders across the country that accept some sort of e-recording. For the same reason, it is also much easier today to locate qualified e-recording software solution providers that are well versed in implementation and the technical requirements of e-recording.
However, county statutes for e-recording are mostly piecemeal, dealing with isolated issues rather than taking a comprehensive and systematic view of the necessary legal and technological developments. The proverbial "thorn in the lion's paw" comes to mind when all of the divergent rules and regulations of the 3,600 recording jurisdictions are taken into consideration.
A push to uniformity
A successful nationwide implementation plan requires an orderly conversion of recording offices for implementation of an effective and substantially uniform electronic recording system. The essential starting point for this monumental process can be found in the Uniform Real Property Electronic Recording Act (URPERA), promulgated in 2004 by the National Conference of Commissioners on Uniform State Laws. Since that time, 25 states have enacted URPERA in some form.Â
Although a growing number of jurisdictions have undertaken e-recording, URPERA provides clear authority to begin widespread implementation of the practice. The act also creates a mechanism to promote harmonious standards between counties and between adopting states.
The basic implementation strategy of URPERA does the following:
- Equates electronic documents and electronic signatures to original paper documents and manual signatures, so that any requirement for originality (paper document or manual signature) is satisfied by an electronic document and signature.
- Empowers recorders who elect to implement e-recording and provides greater clarity for the authority to do so when compared with existing law.
- Designates a state entity or commission responsible for setting statewide uniform standards and requires the entity to set uniform standards that must be implemented in every recording office that elects to accept electronic documents.
- Establishes the factors that the state standards entity must consider when it formulates, adopts and promotes standards for effective e-recording.
- Recognizes that paper documents will likely continue to be accepted by many counties (even those that choose to e-record) for quite some time to come, and allows for cross-storage of electronic and paper documents.
URPERA modernizes real-property law for the 21st century. It is designed to help state administrative agencies meet the growing public demand for quick identification of title ownership. It also streamlines the real estate transaction at a benefit to consumers and every facet of the real estate industry.
The basic goal of URPERA was to create legislation that expressly authorizes land records officials to begin accepting records in electronic form, storing electronic records, and setting up systems for searching and retrieving these land records. The act also ensures the development of coherent standards for e-recording that will function harmoniously between recording jurisdictions and across state lines. It should also be noted that URPERA's intent is only to authorize such activities, not to mandate them.
Nuts and bolts
Once a framework for e-recording is established, the process of electronically recording documents can be broken down into a relatively mechanical, six-step workflow process, as follows:Â
- Submit – Third-party vendors (the "submitter") that facilitate the recording process are now cropping up, and their procedures are now maturing to a standardized level. The submitter provides the software and Web portal to allow an entity to upload the document and send it to the recorder's office.
- Review – Once the document is uploaded to the submitter, it can be reviewed before final presentation to the recording jurisdiction.
- Receive – The recording jurisdiction (the "receiver") will review, reject or accept the document.
- Record – The document, if accepted by the receiver, will be recorded. Typically the transaction time is reduced to less than 10 minutes, gate to gate.
- Payment – The party recording the instrument still bears the cost of recording, in addition to the associated fees charged by the submitter. Those fees are typically less than $5 per transaction.
- Return – The recorded document is routed electronically from the receiver to the submitter and finally back to the party that made the recording request.
There are three viable methods for processing payment with e-recordings: escrow accounts, Automatic Clearing House (ACH) or wire transfer.
When using an escrow account as a payment method, there are a few things to keep in mind. An escrow account will need to be established for each submitter that submits documents for e-recording. These accounts will need to be in place prior to commencing e-recording.
The submitter's escrow account can be funded either through the deposit of funds via check or the deposit of funds via an ACH account. When using escrow accounts for payment of e-recordings, it is important to keep in mind that many submitters will need to replenish their escrow account on a regular basis, and the replenishment of funds should be as easy as the e-recording of the documents. For this reason, submitters may be hesitant to establish escrow accounts for e-recording as it potentially inserts a manual step (paper check) into an otherwise automated process.
ACH is an electronic funds transfer method of payment. ACH is a very reliable payment method when used in conjunction with e-recording as it allows the recording jurisdiction and the submitter to employ a fully automated process for e-recording all the way from payment of fees to recording.
Many recording jurisdictions may be enabled to accept wire transfers from submitters to the recording account. Wire transfers are often used for large dollar transactions, as a fee is typically charged by the sending/receiving banking institution.
When implementing e-recording, it is also important to understand how the submitter will receive notification that the submitted documents have been recorded or rejected. To enable e-recording, the land records system must have the ability to interface with an e-recording vendor. Thus, as part of the e-recording business rules, the land records and indexing system will return the recorded document or the rejected documents to the submitter. If the document is returned rejected, the rejection notice will state all of the reasons why it was rejected.
A case study
A little over four years ago, Clay County became one of the first local governments in Missouri to allow title and mortgage companies to record deeds electronically. The process eliminated the decades-old need for companies to hand-deliver paperwork directly to the county recorder of deeds office. Clay County started recording deeds in 1822 – back when in-person delivery was the one and only method for recording.
After 188 years, there is now a second method – electronic. The new process improved efficiency and reduced the possibility of documents being lost or misplaced. Without e-recording, the wait time can take as long as several weeks for the recorded document to be returned. The new system allows documents to be returned the same day, often in less than 10 minutes.Â
E-recording offers a number of advantages over traditional approaches to document recording. It streamlines and simplifies document workflow processes, improves client service levels, accelerates document recordings, reduces the costly overhead of traditional submission and recordation methods, and enhances document security.
It is true that necessity is the mother of invention. As of April, more than 500 counties nationwide are capable of accepting electronically recorded documents. The model of e-recording is experiencing unprecedented success with recorders who have embraced this technology. It is also providing a competitive edge to the firms that submit documents to the recorders electronically, as it decreases turnaround time and allows firms to more rapidly complete the transaction process.
With time, we could anticipate that recording jurisdictions with e-recording capability will increase exponentially and that the days of paper-based recording will eventually fade into the sunset.
Michael Zevitz is a shareholder with South & Associates and a regular speaker at default servicing industry events. He can be reached at email@example.com.