Many people have been severely affected by the coronavirus through illness, job losses, and business closures. As a result, some clients, understandably, will want to cancel transactions because their circumstances have changed as a result of the pandemic.
Most contracts include a ‘Force Majeure’ or ‘Acts of God’ clause which offers an out to parties to the transaction — in the event they can’t proceed with a contract, due to reasons outside of their control which they couldn’t have foreseen or avoided.
What is covered under these clauses depends on the specific wording in the contract, but commonly they list a series of events which would be considered a force majeure. Some specifically mention epidemics or pandemics as ‘eligible’ events, while others are much broader and include everything out of the parties’ control.
But despite the considerable impact of the coronavirus, there are still people keen to make the most of the lower interest rates — and move forward with property transactions. The traditional methods of closing have been impacted significantly by social distancing measures and shelter-in-place orders. (And you’ve likely faced significant challenges to prevent transactions from being cancelled.) As a result, ‘drive-thru closings’ and ‘remote closings’ have launched as a way of keeping property sales moving.
Traditionally, notarization of documents needs to be done in person. However, many states now have laws covering remote electronic notarization. This allows the personal appearance requirement for notarial acts to be met using technology, and the notary and signer can be in different physical locations to execute documents electronically.
Currently, 27 states in the US have some form of legislation that authorizes remote online notarization. These states are:
- North Dakota
- South Dakota
Additionally, some states have enacted emergency short-term measures for remote notarization as a result of the COVID-19 pandemic.
If you live in one of these states, and both parties want to proceed with the transaction, you can suggest a remote closing option to facilitate the closing process.
One of the key challenges for real estate professionals is to ensure you know your state’s laws and policies on remote notarization and what is required to comply. Although state policies do vary, security and fraud are consistently the main concerns across all states.
To mitigate this risk, multi-factor authentication and two-way audiovisual technology ( which facilitates the signer and notary seeing and hearing each other in real-time) is required.
Establishing the signer’s identity is also a key factor. Various authentication methods are used to ensure the signer’s credentials are validated, including:
- Credential analysis (for example, validating a driver’s license)
- Remote presentation (viewing identification documents via the webcam)
- Knowledge-based authentication (where the party has to answer questions relating to their life, credit or financial history).
These authentication requirements do differ across different jurisdictions.
When performing remote online notarizations, notaries must be present in the state in which they are authorized as a notary, whereas the other signers can be anywhere. There is also an added responsibility to keep records of the electronic notarization, but the records required, length of time to retain the information, and specific requirements vary from state to state.
When Remote Closings Are Not Possible
Remote closings are a great option for those states that allow it, but the current pandemic can be very challenging for real estate professionals located in states that don’t. California, for example, requires the personal appearance of the signer before the notary public. This has led to some creativity in the industry, with some agents using title companies who offer drive-thru services for closings.
What is a drive-thru closing? Typically, this involves most of the work being done over the phone. All parties can sign the papers in the comfort of their own cars, while the notary watches them through the window. This is ideal for states that do not recognize digital signatures, and it satisfies the ‘physical presence’ requirement of the relevant state laws pertaining to notarization.
It’s not necessarily a fast food or bank “drive-thru” scenario. It might be as simple as meeting at the title company parking lot and passing documents through the car window. With social distancing measures in place, real estate agents who would normally attend closing meetings are often now at a distance in their own car. Or they can use tools like FaceTime to communicate with their clients during closing, in case they need any additional assistance.
As with remote closing, security and fraud are the key risks for drive-thru closings. Ensuring that the identity of all signatories is confirmed and credentials are checked is paramount to ensure the transaction goes smoothly.
Protecting Yourself from Risk
You can protect yourself from the risks associated with remote and drive-thru closing by following these tips:
- Keep updated on the COVID-19 restrictions in your state. You can do this by checking out the COVID-19 State and Territory Action Tracker via the National Governor’s Association website (nga.org/coronavirus).
- Ensure you comply with the COVID-19 restrictions and measures for your state.
- Make sure you’re abreast of the notarization rules in your state, keeping in mind some states have issued special orders for remote notarization due to the COVID-19 pandemic.
- Help the seller and buyer work together to complete the transaction in the interests of all parties involved — but stay in your own lane and don’t provide advice outside of your real estate expertise. For example, if a client has a legal question relating to the transaction, advise they should seek independent legal advice. If a client asks you about mortgage-related issues, refer them to their financial institution to check the fine print of their mortgage.
- Keep details of closings confidential and all client information private to reduce the chance of an unauthorized transaction occurring.
- Do your own due diligence when it comes to all property transactions.
- Ensure you have adequate real estate E&O insurance coverage in case something unexpectedly goes wrong, and you find yourself facing a lawsuit.
To find out more, contact the friendly team at CRES at 800-880-2747 for a confidential discussion today. CRES is your real estate errors and omissions specialist with access to more E&O options than just about anyone else. (We’re part of one of the largest insurance brokers in the world.) Let us find you the best coverage for the best price.