A traditional real-estate closing begins with a bunch of people passing pens and papers around a table. It ends with a round of amiable handshakes. During the coronavirus pandemic, however, the customary mortgage closing seems hazardous. Electronic closings, or e-closings, may be a partial solution as buyers and sellers attempt to navigate social-distancing guidelines.
Most mortgage e-closings still require in-person meetings. So if you’ve pictured e-closing as something done completely online, that’s probably not how it’s going to go.
Even so, an e-closing is likely to proceed faster than a traditional mortgage closing, and you’re probably going to be more well-informed about what’s happening each step of the way.
What is an e-closing?
“An e-closing is a loan closing where at least one document is signed electronically,” Rachael Sokolowski, president of Magnolia Technologies, an information technology consulting firm, said in an email.
The mortgage closing, or settlement, is the process in which a home buyer and seller review and sign the documents to finalize the loan and transfer the property. Up through the 20th century, settlement documents were paper and signed in ink.
Now, in the 21st century, the most important closing documents still are usually signed with ink on paper. They include the promissory note, transfer deed and deed of trust or mortgage. Documents of lesser importance — such as the Closing Disclosure and escrow disclosure — are more likely available in digital form, to be signed electronically.
As Sokolowski pointed out, it counts as an e-closing even if you make just one electronic signature and use a pen to make all the others.
Not all e-closings are the same
There are three types of e-closings, says Bill Banfield, executive vice president of capital markets for Quicken Loans:
- Hybrid e-closing. “The borrowers and notary meet in person, and they sign some documents digitally and they sign some documents traditionally,” Banfield says. Most e-closings are of the hybrid type.
- In-person e-notarization, or IPEN. The borrower and notary public meet face to face. All the documents are digital and are signed electronically on a tablet or computer and digitally notarized.
- Remote online notarization, or RON. All documents are signed electronically, and the borrower and notary meet by webcam instead of in person.
When you hear “e-closing,” you might imagine a remote online notarization, where you meet virtually and not in person. But RONs are a minority of closings because most states haven’t updated their laws to allow them.
As of March 26, 2020, 14 states had fully implemented remote online notarizations. Of the five most populous states, Texas and Florida had implemented RON, while California, New York and Pennsylvania had not. Even in states that allow them, remote online notarizations may not yet be the dominant closing method.
In response to the COVID-19 pandemic, some states have temporarily relaxed their regulations to allow remote notarizations. Some of these states still require the documents to be signed on paper instead of electronically, but the notarizations may be performed via webcam. See a list of state emergency actions on the National Notary Association website.
What happens at an e-closing?
Traditionally, your signature consists of handwritten squiggles on a line printed on a sheet of paper. The oft-used industry term is “wet-ink” signature.
Electronic signatures are different, and not just because they’re dry. An electronic signature is applied to a digital document on a tablet or computer.
Electronic signatures vary in format, Sokolowski said: You may electronically sign by typing your name, or by adding a snapshot of your signature by clicking a mouse or tapping a tablet. You may trace your signature with your finger on a tablet or pad, as you do at some cash registers. These are the most common types of electronic signatures, she says.
Whether the closing is conducted face to face or remotely, the notary must confirm your identity. In person you might be asked to show your driver’s license or other government identification. Something similar may happen when meeting by webcam: You might be required to hold your ID in front of the camera. Or you might be asked questions, based on your personal and credit history, that only you would know how to answer off the top of your head.
How e-closings benefit mortgage borrowers
Someday, remote online notarizations might be the norm, and borrowers will be able to e-close from wherever they want. When that happens, the top benefit of e-closing will be convenience.
Until then, the biggest advantage for borrowers may be an improved understanding of the mortgage process.
In 2015, the Consumer Financial Protection Bureau conducted a study “to explore whether the use of e-closing technology combined with more time to review closing documents with embedded educational tools can help consumers navigate the closing process.”
The bureau concluded that borrowers in e-closings understood the closing process better. They got their disclosure documents earlier, giving them more time to review the paperwork. E-closings took less time, too.
What mortgage lenders get out of e-closings
With e-closings, the electronic documents include tracking mechanisms to ensure the delivery, receipt and acknowledgment of documents, Sokolowski said. There’s less paper or no paper, which reduces shipping and storage costs for lenders. And they go faster, too.
One other benefit of e-closings: Electronic documents can’t be submitted with a missing signature. On a paper document, a missing signature might not be detected immediately, causing headaches and delays.