[Originally published on May 18, 2020]
Say the term “RON” to almost anyone working in real estate closings today, and they likely won’t assume you’re talking about a character or coworker named Ron. They will know you’re referring to remote online notarization (RON)—a term that has exploded in popularity over the past two months during the COVID-19 outbreak.
Google Search Interest for “Remote Online Notarization”
RON enables real estate closings to happen completely electronically with a remote notary. This eliminates the need for any in-person interaction or physical documents. As you might imagine, these two benefits make RON especially enticing during COVID-19 when consumers and businesses aim to reduce physical document handling and in-person interactions.
What is remote online notarization (RON)?
RON, or remote online notarization, occurs when documents are signed and notarized in an electronic form. The signer uses an electronic signature and appears before the remote notary using online audio-visual technology.
While the basic components of a RON transaction are simple, (electronic signatures/notarizations and audio-visual technology) there are several additional requirements that generally must be met for a RON transaction to be recognized and accepted by the states, county recording offices, lenders, and underwriters that permit it.
At a high-level, the following conditions must typically be met for a RON transaction (note: these conditions vary by jurisdiction depending on state RON legislation):
- The notary must be physically present and licensed in the state of the property.
- The RON technology platform must offer multi-factor authentication and knowledge based identification to verify the identity of the signers.
- The RON platform must have the ability to scan a government issued ID for the notary to verify the identity of the signer and the validity of their ID.
- Documents must be digitally stamped and tamper-sealed to prevent interference with authenticity and security of the notarial ceremony.
- The notary must keep a video recording as well as an electronic journal as backup files of the notarial ceremony. These must be kept for a period specified by the state law (if not specified, the standard is 7 years).
These standards vary by state depending on the exact verbiage outlined in the state’s RON legislation (or temporary executive order passed during COVID-19).
In addition to state requirements, there may also be additional expectations or criteria for RON transactions among underwriters, lenders, secondary market investors, and government sponsored entities (GSEs). For example, Fannie Mae and Freddie Mac each have their own requirements for RON transactions. Additionally in some cases, counties do not accept RON documents (even if RON legislation has passed in their jurisdiction).
WHAT IS AN ENOTE?
An eNote is an electronic version of a promissory note (the legal instrument of the loan)—one of the most important documents for all parties involved in the mortgage process. The eNote must be in MISMO’s SMARTDoc format and must be e-registered on the MERS eRegistry.
RON transactions therefore require lenders to adopt technology to create eNotes. In some cases, eNotes can be signed using the title or escrow company’s RON platform.
WHAT’S THE DIFFERENCE BETWEEN REMOTE NOTARIZATION AND ELECTRONIC NOTARIZATION?
Some people confuse remote online notarization with electronic notarization; however, these notarization methods are quite different.
In an electronic notarization (eNotarization), documents are notarized and signed in an electronic form; however, the signer still physically appears before the notary. This electronic signing experience helps eliminate physical documents, but not in-person contact.
HOW DOES RON DIFFER FROM RIN, IPEN AND HYBRID ECLOSINGS
Another common misconception is that all eClosings are RON closings. In fact, there are a number of different eClosing options including hybrid eClosings, RIN eClosings, and In-Person Digital eClosings (sometimes referred to as in-person electronic notarization or IPEN).
At a high level, here’s how each of the different eClosing types work:
- In a RIN eClosing, the signing takes place remotely with the signer and notary in separate locations. The signer completes a “wet signature” (ink on paper) while the notary witnesses the signing over live, real-time video. RIN eClosings are thought to be a stop-gap solution during COVID-19 and it’s unclear whether temporary guidelines and executive orders permitting RIN will extend after the pandemic. (To read more about RIN transactions, click here)
- During an IPEN eClosing, eNotarization is used. The signer and notary meet in-person, but all documents are signed and notarized digitally.
- In a hybrid eClosing, the signers complete some of the signatures electronically ahead of the closing date. Then, on the day of the closing, the signers appear before a notary to ink-sign the remaining documents that require notarizations.
Below is a snapshot of the different eClosing types and how they differ.
What regulatory criteria exist for businesses to use RON?
In order to perform a RON transaction in-house, the notary at the business must be authorized for RON per state guidelines. These guidelines are usually determined by the Secretary of State or other notary governing entity.
State legislation is changing in response to COVID-19. Some states have already enacted legislation to permit remote online notarization and others have issued emergency orders. States also vary in their requirements in order to be certified for RON. Common state requirements can include things such as:
- An active notary commission
- Additional education
- Application to the Secretary of State
- Selection of the software to be used for RON
- Applicable fees
In addition to state-level requirements, there may be varied requirements at a county-level as well as varied standards and requirements among underwriters and lenders. For example, underwriters may only insure the transaction with certain RON vendors or platforms that are specifically designed for real estate transactions. Lenders may also have additional requirements to meet their own needs with investors (e.g. the ability to store the video in their systems).
The future is RON
As the need for remote notarizations and contactless closings continue during COVID-19 and beyond, RON will be an important fixture in real estate transactions. If there were any doubt before, RON has now proven to be a critical tool for title & escrow businesses and lenders. While not every transaction will be handled remotely after the pandemic, businesses with the capability to perform RON transactions will be better equipped to meet consumer and partner demand for customized signing experiences.
RON transactions require coordination, planning, and the right technology for success. Companies that start planning for RON now will come out ahead in the months and years ahead.