January 05, 2018

Is eRecording Secure? Recognizing the Risks, Deflating the Myths

When it comes to the electronic recording and notarization of documents, Kentucky has historically been on the outside looking in, while neighboring states have embraced the efficiency and cost-saving benefits of eRecording. But that may soon change: Kentucky is on the verge of passing legislation that would adopt the key provisions of the Uniform Real Property Electronic Recording Act (URPERA) and Revised Uniform Law on Notarial Act (RULONA). If the bill passes in 2018, Kentucky will allow eRecording for real estate documents (currently prohibited under Kentucky's non-uniform UETA, KRS 369.103(2)(c)) and eNotarization). While Kentucky has gradually warmed to the idea of eRecording, some remain skeptical of the e-trend, fearing it may expose consumers to new security risks and hazards.

On the one hand, an appreciation of potential security risks is a good thing, given the challenges in implementing new eRecording and eNotarization systems. Any computer-based system comes with hazards, from data corruption and recovery issues to malicious software and rogue hackers. A private eRecording software company could inadvertently allow unintended access to customers' documents, hire inadequately trained individuals, or even suffer employee malfeasance. Any county clerk or office currently eRecording relies on that company's network security, file and folder organization systems, and recovery capabilities (or lack thereof).

On the other hand, these potential security risks tend to be overstated. Unlike digital medical records, with the privacy concern of exposing personal health information, land records are public. The fraudulent recording of mortgages and deeds is the concern with eRecording. Electronic documents, however, are arguably much less susceptible to fraud than their paper counterparts, and just as secure if not more so. As the Property Records Industry Association ("PRIA") explains, certain protocols and encryption algorithms protect digital documents. Paper submissions lack these protections. With eRecording, an audit trail allows the document to be traced from the moment it is scanned, through the entire recording process, and back again to the submitter. Paper documents do not have an audit trail.

Moreover, eDocuments contain metadata that provides details about who accessed and e-signed it, when they accessed it, and where. So the document's distinct audit trail also ties to the individual signing it, whereas paper documents can be more easily forged or manipulated. By adopting URPERA, Kentucky will enhance the security of real estate transactions.

Besides improving the accuracy of the documents themselves, eRecording also imposes enhanced vetting for signors. Recording clerks are not capable of verifying the information set forth in an instrument, or the identity of the person in front of them, but with the dawn of eRecording, submitters must now enter agreements with private companies, set up an electronic payment system, and receive authorization to install the software, which creates electronic footprints that can be traced back to perpetrators of fraud. eNotarization similarly helps filter out perpetrators, whose ability to fraudulently record real estate instruments largely depends on the notary. In order to commit recording fraud, the culprit must find a conspiring notary willing to assist in the fraud, or a notary known to lack due diligence when confirming identities, or else must risk using false identification. eRecording skeptics also frequently express concerns about "robo-signing" â a signor's failure to conduct the necessary investigation before attesting to a document â which they fear will run rampant in a digital world. The risk of robo-signing, however, is reduced with the new legislation because it will now require notaries to maintain journals whether the notarization is electronic or manual.

As PRIA notes, the risks of eRecording are "similar to those inherent in the paper recording process," but "are not necessarily a function of how the document was received or recorded." While certain risks of eRecording exist, its use helps reduce fraud and improve verification accuracy. Fraud and imprecision in the recording process may not be eliminated entirely, but can be lessened through Kentucky's adoption of URPERA and RULONA.