For centuries, state fraud laws relied on paper documents and manual signatures to make real-estate transactions enforceable. Paper deeds were filed as public records to establish who had rightful title to any piece of land. First, it establishes that any requirement for originality is satisfied by an electronic document and signature. This extends the principles of UETA and E-Sign to the specific requirements for recording documents relating to real-estate transactions in any state.
No paper, no enforcement.
Addressing real-estate documents' special demands is the next phase in developing law to support electronic transactions, according to the National Conference of Commissioners on Uniform State Laws (NCCUSL) -- the 113-year-old association that provides states with nonpartisan legislation designed to bring uniformity and stability to critical areas of state law.
As part of the drive to modernize how local governments across the country record real-estate documents, the NCCUSL's Uniform Real Property Electronic Recording Act (URPERA) was released in August 2004.
21st-Century Real-Estate Records
Utah, Delaware and Texas (pending the governor's signature at press time) have enacted legislation based on the act. Virginia also passed legislation with a reenactment clause, requiring the Legislature revisit the act before it goes into force. The NCCUSL also expects URPERA-based legislation to pass in North Carolina and the District of Columbia in the near future.
"The purpose of URPERA is to get states prepared to do real-estate recording and search functions electronically," explained John McCabe, legislative director of the NCCUSL. "The states are pretty much all still with paper -- with a few exceptions."
Some states already have a certain amount of electronic recording going on, McCabe continued, and at least a few states have authorized certain counties to record real-estate documents electronically -- which indicates preliminary activity.
"There must be an orderly conversion of every recording office in the United States for electronic recording to become universally accepted, and that will be a complex process," he said. "URPERA provides a starting point in the law for that to occur."
Just how complex the real-estate records transition will be is highlighted by some of the issues addressed in drafting URPERA -- a two-year deliberative process. Many of those issues were first considered when the NCCUSL drafted the 1999 Uniform Electronic Transactions Act (UETA).
The UETA adjusted statute of fraud provisions to include electronic records and signatures for all kinds of transactions, including basic real-estate transactions, such as sale contracts, promissory notes and mortgage instruments.
The success and widespread enactment of UETA, combined with the passing of the federal Electronic Signatures in Global and National Commerce Act (E-Sign), set the foundation for the next step -- dealing with real-estate recordation, McCabe said.
"Back when we did UETA, everybody understood there was a set of issues relating to real estate that were not and could not be addressed in a general transactional statute like UETA," he recalled. "Real-estate recordation simply presented too many special problems that were going to have to be addressed separately."
These issues stem from the fact that real-estate documents must be recorded as public records to be effective, which happens in most states in the county offices devoted to keeping these records.
Recording establishes who holds interests in real estate and the chain of title leading to the current titleholder, meaning the historic record of documents relating to transactions for a specific piece of real estate. State law governs these local recording offices, and those laws contain requirements relating to the originality and authenticity of paper documents that are presented for recording.
"URPERA does three fairly simple things that will have a large effect," explained McCabe.
Second, it establishes a set of standards that recording offices
must follow and what they must do to make electronic recording effective. For example, it says offices must comply with standards set by a state standards board and must set up a system for searching and retrieving electronic documents under a set of minimum requirements established in URPERA.
Third, URPERA actually establishes the board that will set statewide standards and requires it to set uniform standards that must be implemented in every recording office.
Addressing ever-changing technology issues required careful thought, McCabe said, because early efforts to tackle electronic transactions in law went as far as mandating specific technologies.
"But we came to the conclusion -- and I think the feds have too, because they addressed it in E-Sign -- that we really don't want to deal with specific technology in statutes," he said. "You want to allow the entity -- whether federal, state or local government -- the ability to acquire suitable technology under appropriate standards."
URPERA delineates a state body responsible for setting statewide standards so at least all counties in a state are the same, McCabe said, and the standards should address several key issues for real-estate documents, including authentication, storage and accessibility.
"Authentication is not a word that has precise definition in this business, so what we are talking about is safe signatures, encryption technology and security," he said. "Security is probably a better word for what has to be dealt with here."
There is also the question of electronic records' longevity and technology transitions, McCabe said, citing the transition in storage technologies over the last 20 years -- from 5.25-inch floppy disks to DVDs -- as one example. Not only does this raise the issue of change, he continued, it also forces agencies to confront the more serious question of determining the longevity of any storage technology that's chosen.
"Bear in mind, real-estate records have to go back for hundreds of years, so somebody out there has to make the choices and set the standards," he continued. "You can't do that by writing it into law time and time again. If you keep going back to the legislature, you are always going to be behind."
Even search functions require strict standards.
"People need to be able to search these records efficiently and without error," said McCabe. "One reason to have these records on computer is that you can then search them by computer. It is faster and more efficient. So the issue of absolute accuracy is vital, not only in terms of authentication, but also for searches."
States will need to solve other issues. If paper real-estate documents take legal effect when they are time-stamped upon delivery to a recording office, when should electronic documents, which can be electronically delivered any time of the day, take legal effect?
"If you have folks recording paper documents at the same time you have folks recording electronically, you have to have something consistent," said McCabe.
URPERA gets the states, one by one, onto the same page when electronically recording real-estate documents to establish consistency across the country.
"It takes care of the last of the statute of fraud issues that were previously based on paper documents and a manual signature, and says you can accept an electronic record and signature," he said. "It provides the standard-setting function and some of the other transition rules. Now, state by state, people are going to have to look at it, and look at the relationship of the written records that exist -- some of which even predate typewriters -- to the electronic records to come."
Arizona became the first state to pass legislation based on URPERA in April 2005.
"Just the enactment of the act itself, which authorizes the recording be digital is one thing, but we still need to make a few other changes," explained James Bush, a member of the Arizona Uniform State Laws Commission. "The act in Arizona, as it was passed, provides for creation of a commission of people appointed by the governor -- a representative of the state bar association, title companies, lenders and so forth -- to look at Arizona statutes and see what other changes need to be made to accommodate the move to electronic recording of real-estate transactions."
This commission has one year to come forward with proposals for those other changes. Though the Uniform Electronic Recording Act has been passed in Arizona, it takes effect one year from now, according to Bush.
One reason Arizona acted so quickly to implement URPERA is that Maricopa County, the largest in the state, is growing tremendously.
"We had Helen Purcell, Maricopa County recorder, on the advisory committee of the NCCUSL, and she was very supportive of getting this through," said Bush. "Her office has processed over 1 million documents each year since 2001 and reached 1,700,000 in 2003. You can imagine the problems of trying to keep up with this the old-fashioned way."