Signed, Sealed and Electronically Delivered

If new technology, better standards and legislative changes are clearing the path for counties to electronically record land and title documents, why is hardly anyone doing it?

by / September 24, 2002
The county recorder in San Mateo, Calif., thought he had an excellent pilot project to test a fully functional electronic document recording system - and the technology worked. Business partners were behind the project. Standards had evolved to make different systems function together. And state legislation had been passed, making electronically signed documents legal.

There was just one hitch. California's notaries insisted they still attach their seal to the property documents, technology or no.

It took about seven months of wrangling with California's secretary of state to straighten out the problem, said Warren Slocum, San Mateo's clerk-recorder-assessor. Finally, the secretary of state agreed to change the guidelines, allowing California's notaries to embed specially made electronic seals on the reconveyance documents. Although it wasn't the perfect solution, it allowed the pilot project to move forward.

But the story's not over. Although the pilot clearly proved the technology works, plans to move forward with a full-scale electronic document recording system are on hold, according to Slocum. "The state Attorney General is worried about the potential for fraud and may not wish to see this type of solution take place in the near future," he said.

New Solutions, Not New Practices
Slocum's predicament reflects the ongoing struggle within the electronic document recording industry and county government. Technology, standards and legislation have converged to offer compelling new solutions for the electronic recording of real estate documents. But politics, tradition and fear of change have slowed its acceptance. "We aren't trying to change any practices or laws," said Steve Jordan, project manager for Ingeo, an electronic document software firm that worked on the San Mateo project. "We're just trying to help them do their job better."

Technologically, a solution exists for virtually every situation, including software that can manage all sorts of file types, electronic signatures, workflow solutions and integration tools. Standards also have become more realistic, thanks in large part to the formation of standard-setting committees, such as the Property Records Industry Joint Task Force and the Mortgage Industry Standards Maintenance Organization.

They haven't solved the entire standards puzzle, but these groups have done a good job of collaborating to ensure a framework for developing good standards exists, according to industry experts. Specifically, they have focused on Extensible Markup Language (XML) standards to improve how different computer systems send, receive and read electronic data.

Meanwhile, legal barriers to electronic document transactions have fallen. Five years ago, Congress passed the electronic signature law known as E-SIGN. Many states also have adopted and passed the Uniform Electronic Transaction Act (UETA), although a number of legislatures have interpreted the rules differently.

All of these advancements have turned electronic recording from a concept into a viable method for filing documents. Mortgage lenders, title companies and banks have joined with system vendors and county governments to lay the groundwork for systems that will benefit just about everyone.

Slocum pointed out that his county would see significant gains in productivity, and he believes electronic recording would reduce carpal tunnel syndrome, the scourge illness in today's workplace. By eliminating the constant rekeying of data from paper documents into his county's computer system, workers not only will save time, but also their health.

Electronic recording technology comes at a time when government jurisdictions face an explosion in paperwork. San Mateo has seen document recordings rise significantly as the number of refinancings and new mortgages has surged. The same is true in St. Louis County, Minn., where the number of documents filed at the county recorder's office grew 40 percent without any additional staff, said County Recorder Mark Manocelli.

A similar situation also existed in Salt Lake County, Utah, where the recorder's office staff shrunk from 100 employees to 60, while the number of filings soared, thanks to a boom in housing in the Salt Lake region. Last year, Salt Lake County became one of the first in the nation to accept digitally signed electronic documents, known as lien releases. These documents, which are filed by mortgage service companies when a home mortgage is paid off, constitute nearly 50 percent of the 1,400 or more documents that pass through the Salt Lake County Recorder's Office every day. By making the process entirely electronic, the office has reduced mail volume, staff workload and time spent processing documents by 15 to 20 percent.

San Mateo Tests
Those kinds of results convinced San Mateo County it should test a similar solution so other county recorders, the real estate industry and state officials in California could see just how well the technology worked. With at least 70 observers looking on from the eDocument Forum, a California-based nonprofit organization that champions electronic documents, San Mateo launched its pilot project back in January 2002.

The project directly involved several key partners, including the county; Deloitte & Touche LLP; Ingeo; iLumin, an e-business firm specializing in document security; and Eagle Computer Systems, a developer of land recording systems for county government. Together, the group decided to implement a solution that not only dealt with recording electronic documents filed by mortgage service firms, but also tax liens, which are filed by California's Franchise Tax Board.

"The plan was to develop a business-to-government application and a government-to-government application," Jordan said.

The initiative was similar to Salt Lake County's system. Business filers used a Web-based application hosted by Ingeo called ePrepare 2.5 to create, sign and transmit the documents to the county. The state's Franchise Tax Board used a similar application based on XML standards to automatically send and receive tax lien information. The documents were received and processed by eRecord 2.4, another Ingeo application that resided on a server controlled by the San Mateo Recorder's Office.

Critical to the entire process was the electronic signing of documents using Public Key Infrastructure (PKI), which consists of several software components that ensure the document has not been tampered with. In addition, the county hired an outside security firm to review and analyze the entire process for possible security breaches.

As of late August, when the pilot ended, the county had recorded nearly 1,700 documents from the Franchise Tax Board and almost 100 documents filed by three title companies that agreed to participate in the project.

Potential for Fraud?
But the whole test could end up a wasted effort if politics get in the way, which seems to be the case in California and elsewhere, according to experts. San Mateo and its many partners discovered that when the state's notaries refused to substitute an electronic signature for the seal they place on documents with a rubber stamp. Only by working with the secretary of state for months did they straighten the matter out.

But now, the California District Attorneys' Association and the state's attorney general oppose electronic recording. Both have cited the potential for fraud as the prime reason for opposing the use of digitized legal documents. In particular, Attorney General Bill Lockyer, opposes any statewide law that would permit county recorders to accept e-filings. Spokesperson Sandra Michioku said it should be a local option. "His concern would be insuring protection of the filings, the security and privacy of the filings so that there is not a problem with fraud and abuse of the electronic recordings," she added.

But Slocum believes the district attorneys and the state are ignoring the facts about the technology. "The electronic approach [tested in San Mateo] leaves a complete audit trail," he said. The eDocument Forum also stressed the integrity of PKI, pointing out that the technology is more secure than any paper process now in place.

Because of its size, California can play a large role in how fast the rest of the country's recorders adopt e-recording. And it's not just state officials who are wary. "Old school county recorders see it as a huge shift and are threatened by it," Jordan said.

But efforts are underway in different parts of the country to gain a toehold in the e-recording field. Maricopa County, the largest in Arizona, has an e-recording project underway with Ingeo. Fairfax County, Va., which records nearly 300,000 documents annually, also is accepting electronic versions of reconveyances, known as certificates of satisfaction. In August, Lancaster County, Pa., announced it was accepting electronic versions of lien releases, which are known as mortgage satisfaction documents in the state.

Steve McDonald, Lancaster's recorder of deeds, called the benefits of the new system significant. "Right now, it takes every human function in our office and handles it electronically," he said. He called his decision to take this route a "leap of faith," but his system, which cost $75,000 for the software, has proven the technology works. As for security, every step has been taken to ensure the county controls the electronic documents. That includes an archive writer at the end of the process that automatically creates a microfilmed image of the document for archival purposes.

So far, Ingeo has been a leader in developing solutions tailored for county recorders. Another vendor, Hart InterCivic, has created recording software that has been used in Snohomish County, Wash., and is introducing a Web-based solution called Anthem.

But few other vendors are developing XML-based document recording solutions for counties. The reason is profitability, or lack thereof, said St. Louis County's Manocelli. Out of more than 3,500 recording offices in the country, only about 250 are considered large enough to afford the kind of systems currently available. "About 80 percent of the real estate documents in this country are recorded in about 20 percent of the counties," Manocelli said.

That makes for a small market. But Manocelli is hopeful the situation will change once the big recorders invest in the technology. "Once they adopt e-recording, there will be broader acceptance and you will see prices come down."
Tod Newcombe Features Editor