General Practice, Solo & Small Firm DivisionMagazine
VOLUME 19, NUMBER 2 MARCH 2002
REAL ESTATE LAW
E-commerce in Real Estate Transactions
By William P. Gardella
This article reviews the key provisions of the Electronic Signatures in Global and National Commerce Act (Act) and the Uniform Electronic Transactions Act (UETA). Federal preemption of state law on electronic transactions is intended to be a temporary measure. State law is to be preempted only until states adopt uniform standards that are consistent with those set forth in the Act or in UETA. The article concludes with a discussion of how the integrity and confidentiality of electronic real estate transactions can be protected.
Electronic records and signatures. The Act provides that a contract, signature, or other record relating to a transaction that affects interstate or foreign commerce cannot be denied legal effect solely because it is in electronic form. The term "transaction" includes the sale, lease, exchange, or other disposition of any interest in real property. The parties to a contract are not required to enter into or sign a contract in an electronic form, but the Act gives them the option to do so.
An electronic copy of a contract is adequate for purposes of the Act if the electronic version accurately reflects the information in the contract and can be accurately reproduced at a later date by the parties that are entitled to access the contract. The Act is technology neutral. It defines "electronic" broadly as "relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities."
The term "electronic signature" is defined as "an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." That term could include the simple act of typing a name at the end of an e-mail message or the more sophisticated act of attaching a digital signature.
Exclusions. The Act does not apply to contracts or records governed by laws pertaining to the execution of wills, codicils, and testamentary trusts. The Act also does not apply to records or contracts subject to laws pertaining to adoption, divorce, or other family law matters or to court orders, notices, and pleadings.
Provisions in the Uniform Commercial Code governing waiver or renunciation of a claim or right after breach, statute of frauds, and Articles 2 and Article 2A are covered by the Act. All other provisions are excluded.
The Act specifies the types of notices that may not be sent electronically, including notices of the cancellation or termination of utility services. Default, acceleration, repossession, foreclosure, and eviction notices related to a primary residence of an individual also are excluded from the Act. Documents that are required to accompany the transportation or handling of hazardous materials may not be used in an electronic form.
Consumer contracts. Consumer contracts fall within the coverage of the Act, but detailed disclosure procedures must be followed for these transactions. Before obtaining a consumer's agreement in an electronic format, the consumer must be provided with a disclosure statement. This statement must inform the consumer of certain rights, including the option to proceed with the transaction in a paper or nonelectronic form and the procedures to be followed in the event the consumer elects to withdraw the consent to use an electronic format. The consumer must also be informed about the hardware and software required to complete the electronic transaction and how to obtain a paper copy of it. A consumer's withdrawal of consent does not affect the validity of electronic contracts or records provided before the withdrawal.
Uniform Electronic Trans-actions Act. The intent of UETA is consistent with the intent of the Act: to remove restrictions on entering into contracts and signing documents in an electronic format and to ensure that electronic signatures, records, and contracts will be treated in the same manner as those in written form. UETA removes the requirement of the pen and ink medium for the effectiveness of a contract, record, or signature, but it does not otherwise affect substantive law. UETA simply permits a signature to be furnished in an electronic format. It provides that to the extent the law requires that a signature be notarized, acknowledged, or verified, the requirement is satisfied if the electronic signature of the person is attached to or "logically associated with" the signature.
Effect on real estate transactions. The Act is intended to cover real estate transactions. Although UETA is intended to apply to real estate transactions, it gives states the option to exclude certain types of transactions from its coverage. Similarly, the Act permits a state to except matters from the coverage of UETA if those exceptions are not inconsistent with the Act. A state may, therefore, exclude real estate transactions from its version of UETA or refuse to permit electronic filings of real estate transactions. As a result, the parties may be able to enter into a contract electronically yet be required to use the traditional paper-and-pen approach for recording purposes. If the transaction involves interstate or foreign commerce, however, the parties may elect to proceed electronically because the Act preempts inconsistent state law.
The definitions of an electronic signature and document are so broad they apparently include such things as voice mail and e-mail messages. It may come as a surprise to learn that the Statute of Frauds may not save a party from an ill-worded voice mail or e-mail message.
Public key cryptography. Public key cryptography is an electronic method of allowing parties to communicate electronically over an open network, such as the Internet, with a reasonable expectation of privacy. Public key cryptography involves the use of two electronic "keys," one private and one public. A message encrypted with the private key can be decrypted only with a corresponding public key, and vice versa. Therefore, only the users of a corresponding pair of private and public keys can scramble and unscramble messages.
Public key cryptography involves the role of a third party, called a Certificate Authority (CA), to provide assurances to the parties regarding the identity of those using the keys. A party that applies to a CA for a digital certificate should consider the scope of the transactions that may be covered by the certificate and the number and identity of the parties that may rely on the certificate. Similarly, before a party relies on a digital certificate, the party should consider its scope and the potential number of other parties that may also rely on it, because that will have an impact on the potential exposure of the CA if defects later arise.
The subscriber, the CA, and the relying party should reach an agreement that outlines the rights and obligations of the parties. The agreement may set forth boundaries for the use of the digital certificate, who may rely on it, when, limits of liability, requirements for the CA to maintain a stated financial level, and the CA's practice statement. To evaluate the CA's financial responsibility, it would be useful to require the CA to disclose the number of certificates that it has issued and its aggregate financial liability under those certificates.
The CA's practice statement may outline such matters as its technical and due diligence standards and an agreement to notify the subscriber and the relying parties of the revocation of the certificate. The CA should be required to revoke the certificate if the CA has reason to believe that information provided to it is inaccurate or if access to the subscriber's private key has been compromised in some way. The CA should also contractually agree to be responsible for maintaining the integrity, confidentiality, and availability of the data. These issues should be considered and addressed in an agreement having contractual privity among the affected parties.
William P. Gardella is associate general counsel in the legal department of Metropolitan Life Insurance Company in New York City.
This article is an abridged and edited version of one that originally appeared on page 44 of Probate and Property, July/August 2001 (15:4).