Imagine recording real property documents at a county office in two hours. Does this sound like a crazy idea? It shouldn’t. The reality is that commercial mortgage lenders and brokers are doing this today. And the speed and ease of using this process is something that’s available to almost everyone, if they know where to look.
One thing that every commercial mortgage broker or lender knows is that the servicing of loans is extremely time-consuming, even under normal circumstances. But thanks to the promise of e-recording for mortgage documents and e-filing for Uniform Commercial Codes (UCCs), the county recording landscape is changing rapidly. Mortgage companies that put off or fail to embrace the promise of e-filing their documents could see significant problems over time, including inefficiencies, rising costs and dissatisfied borrowers.
Jurisdictional shift
Consider county-level recordings for a moment. According to the Property Records Industry Association (PRIA), there are more than 3,600 recording jurisdictions in the U.S. Of these, most accept some form of electronic recording while some only accept paper documents. There are now six jurisdictions, however, that accept only e-recordings. And this number will continue to increase. It’s time to realize what this trend may mean to a typical commercial lending institution.
It’s true that UCC lien and mortgage-related documents at the county level remain paper driven in many cases. Still, a growing number of jurisdictions are now banning paper altogether and are only accepting documents in electronic formats. These include the District of Columbia and the Georgia counties of Brooks, Effingham and Miller. The government-sponsored enterprises Freddie Mac and Fannie Mae have accepted electronically recorded documents since 2017. These are clear signs that things are quickly moving away from paper standards.
To be fair, more than 2,300 of the 3,600 jurisdictions across the country already accept some type of e-recording, which covers about 87% of the U.S. population, according to PRIA. There are differences in the details, but this technology is common in most parts of the nation.
There is, however, a marked lack of uniformity present from one state to the next and even between one county and the next. There’s even one state — Vermont — that currently does not allow e-recordings. At the other extreme, 13 states have embraced e-recording in 100% of their counties. So, while there is plenty of electronic recording going on, there’s still a place for paper, at least for now.
Necessary path forward
With more jurisdictions moving toward e-recording, there will certainly come a time when it is the only option accepted. As noted, there are already six U.S. jurisdictions that have stopped accepting any type of mortgage-related paper documents. For UCC documents, there are currently 10 counties that only accept electronic filings.
As a lender or broker, even if you do not currently conduct business in these counties, it’s critical to recognize that electronic-only documentation is the most likely path forward. Is your team aware of how these counties operate? Are you mailing documents only to have them rejected?
Look beyond the factors of speed and convenience. Consider the risks that come from relying on the old standard of processing documents manually. Think about other departments in your organization. Have they incorporated electronic documentation or possibly even electronic signatures?
The onset of the COVID-19 pandemic in March 2020 abruptly shut down county offices, and it dramatically slowed the efficiency of the U.S. Postal Service and courier services for several weeks. Many documents piled up in office foyers because there was no one there to receive or process them. Therefore, for example, paperwork deemed “complete” on March 10, 2020, and sent through the mail that day may not have been recorded or filed for months (or was lost altogether). Under normal conditions, falling even a few days behind can cause serious issues for commercial mortgage lenders and their clients. Weeks or months of delays can cause a transaction to completely fall apart.
Once county offices began reopening in a limited manner, many processed the backlog as best they could, starting with whatever document was on top of the pile. It is difficult to know if these offices were able to process the paperwork on a first-come, first-served basis.
Alternatively, consider what happens when mortgage companies move to a secured e-recording method. Document images are lined up in a queue, in the order in which they arrived. They are located in an organized system and there is virtually no chance for them to go missing. There also is no elevated risk of security. In fact, the security is stronger on many online platforms than in the offices of many county recorders.
Tech partnerships
As mortgage professionals know, technology can have its glitches. When it comes to e-recording, many of these issues can be avoided by choosing partners with the right tools. A knowledgeable tech partner can resolve many of the problems associated with the dichotomy of paper versus electronic.
Some of the most effective ways that e-recording partners can transform mortgage company operations are already available. They include features such as e-signing capabilities. This is a common source of slowdowns in the closing process. Authorizing a partner to sign on your behalf can streamline this step. In addition, e-signing can speed up the recording process since there is no exchange of paper documents.
Other helpful changes include the use of paper documentation images. Depending on the requirements of the county, service providers can electronically record the digital images of paper documents. It’s a fast, efficient and easy way for paper document users to bridge the gap to full electronic capabilities. This also impacts the mailing of borrower-notification letters. After a loan is paid off, teams working on your behalf can customize so-called “goodbye letters” and mail these recorded releases to clients along with personalized messages.
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Tech support also can help keep clients up to date on compliance requirements. Automated compliance tracking tools enable timely execution and reduce the risk of being outside of compliance requirements. The right partner will have experience in both paper and electronic formats. It’s important that you only have to use a single web-based platform, regardless of whether a jurisdiction allows e-recording or still insists on paper documentation.
E-filing and e-recording are not the way of the future — they are the way of the present. For real property documentation, the efficiency, security and overall convenience of e-documentation makes it the most logical option for mortgage companies. Still, paper will always have its place, no matter how small, and it’s vital for the modern commercial mortgage professional to be flexible enough for both. ●
