Knowing When to Walk Away
Appellate courts in New York and Florida recently ruled that mortgage lenders "holding" electronic notes had standing to foreclose on the real property securing the E-Notes. Although Congress passed the Electronic Signatures in Global and National Commerce Act (ESIGN) in 2000, and nearly all states have passed the Uniform Electronic Transactions Act (UETA) in the last decade, there have been very few cases addressing and confirming the enforceability of E-Notes. Last year, the Consumer Financial Protection Bureau opined that e-mortgage lending can benefit consumers. These cases may reduce lenders' perceived risks and provide greater certainty enforcing electronic documents.
In Rivera v. Wells Fargo Bank, the borrower argued that the Bank could not prove that it had possession of the E-Note. The Florida court analyzed the UETA requirements, and determined that the E-Note would be a note if it were in writing, and that the bank had control of it because there was a single authoritative copy identifying the person asserting control as the person to whom it was issued, or to the transferee of such person. The court found substantial evidence that these requirements were met.
In New York Community Bank v. McClendon, the trial court dismissed the foreclosure complaint, apparently concluding that the bank had failed to establish that it was entitled to enforce the E-Note. The appellate court reversed, and after analyzing the requirements of the ESIGN Act, concluded that the E-Note was a transferrable record and that the bank had established control of it.
Although Kentucky also adopted the UETA in 2000 (KRS 369.101 to 369.120), it still needs to pass additional legislation to fully implement E-Mortgage lending. It should consider the Uniform Real Property Electronic Recording Act, which would facilitate recording in the county clerks offices by electronic means. It should expand its non-uniform version of UETA to include real estate transactions. Finally, it should consider adopting the National E-Notarization Standards proposed by the National Association of Secretaries of State and the Revised Uniform Law on Notarial Acts.