In real estate financing transactions, a lender will typically require an opinion giver to issue an opinion that the loan documents have been duly authorized, executed and delivered by the borrower. Traditionally, lawyers have had little concern rendering a duly authorized, executed and delivered opinion because, after confirming that the borrower had taken all appropriate action to authorize execution of the loan documents, the opining lawyer either (a) witnessed the execution of the loan documents by an authorized representative of the borrower (in the case of an in-person closing, which has become increasingly rare in commercial loans) or (b) reviewed originals or copies of the executed loan documents that were manually signed by an authorized representative of the borrower and that were physically delivered to the lawyer, in each case with the lawyer also confirming that the executed loan documents have been delivered (or “released”) by the borrower to the lender before the lawyer authorizes the release of the opinion letter.
However, the COVID-19 pandemic and the resulting reliance on remote working arrangements have severely limited the ability or the willingness of many parties to execute loan documents manually. Many borrowers as well as lenders have turned to electronic execution of loan documents as an alternative. Even after the COVID-19 pandemic recedes and remote working becomes less prevalent, electronic signatures may become the preferred method for many parties to execute documents in commercial real estate loans.
This article addresses the legal ramifications of rendering a duly authorized, executed and delivered opinion in a real estate financing transaction that occurs remotely with electronic signatures. To the extent that a loan document is required to be notarized and recorded, electronic notarizations and remote online notarizations, where authorized, provide further options for remote closings, but that subject is beyond the scope of this article.
Though electronic signatures have been authorized for several years, their use can still give opinion givers pause. Electronic signatures became legally recognized under federal law (with certain exceptions) in 2000 when President Clinton signed the Electronic Signatures in Global and National Commerce Act (“ESIGN”). At the state level, the Uniform Electronic Transactions Act (“UETA”), which is substantially the same as the ESIGN Act, is now the law in forty-seven states.
ESIGN and UETA interplay with each other in a few significant ways. First, ESIGN is the law in states that have not adopted UETA or an alternative statute for the use of electronic signatures. Second, if a state has adopted UETA, ESIGN will preempt it only to the extent that the state’s version is inconsistent with ESIGN. Finally, if a state has adopted an alternative electronic signature statute that is consistent with ESIGN, ESIGN will not preempt that statute.
The effect of the interplay between ESIGN and UETA is that every jurisdiction in the United States is governed by substantially the same rules regarding electronic signatures. Generally speaking, under ESIGN and UETA: (1) a signature may not be denied legal effect or enforceability because it is in electronic form; (2) a contract may not be denied legal effect or enforceability because an electronic record was used in its formation; (3) if a law requires a record to be in writing, an electronic record satisfies that requirement and (4) if a law requires a signature, an electronic signature satisfies that requirement.
In order for an electronic signature to be valid under ESIGN or UETA, two primary requirements must be satisfied. First, the electronic record or electronic signature must result from a person’s action in order to be attributed to that person, as opposed to being attributed to a computer or machine. A “person’s actions” has been interpreted to include actions taken by human agents of the person, as well as actions taken by an electronic agent when acting as the tool of the person, such as a person using a computer to type their name at the bottom of an email. Second, the parties must have agreed to conduct the transaction electronically, which is determined from the context surrounding the circumstances, including the parties’ conduct. Generally, the exchange of electronically signed documents manifests an agreement of the parties to use electronic signatures. The exchange of electronically signed documents may include signatures in emails, PDFs, faxes, DocuSign or Adobe Sign. Parties might want to consider using services such as Adobe Sign or DocuSign, which have trackable security measures and data in order to ensure that the electronic signature may be attributed to the person signing and not run afoul of ESIGN and UETA requirements.
It is also important to note that certain documents are not covered by ESIGN and UETA. In these cases, electronic signatures will not be considered legally binding. Opinion givers should be particularly aware that documents and instruments governed by Article 2 of the Uniform Commercial Code are outside the scope of ESIGN and UETA. Additional documents outside the scope of ESIGN and UETA include, but are not limited to, powers of attorney, wills, codicils, trusts, divorce decrees, official court documents, court orders and notices.
Opinion givers should also confirm that the express terms of any document to be executed electronically do not require that it and any amendments be signed manually. Thus, before giving an opinion that documents have been duly and validly executed, the opinion giver should confirm that the document does not prohibit electronic signatures. Generally, however, as a matter of customary practice, an opinion giver can give the opinion that documents have been duly executed based in part on an implied or express assumption that all signatures are genuine. This assumption applies equally to manual and electronic signatures because, as outlined above, electronic signatures have the same legal effect as manual signatures, subject to certain exceptions.
Wet ink signatures may still be required for mortgages, deeds of trust and other documents to be notarized and recorded in the applicable recording office. Although an electronically signed mortgage might be enforceable as between the lender and borrower, many local registries do not accept documents for recording unless they contain wet ink signatures.
The COVID-19 pandemic has caused increased interest in the usage of electronic signatures. Electronic signatures were widely used before the COVID-19 crisis and will likely increase in prevalence as companies and individuals continue to work remotely and, in any event, as the parties to real estate financing transactions begin to appreciate the convenience of electronic signatures. In connection with legal opinions, opinion givers can rest assured that electronic signatures generally have the same binding legal effect as wet ink signatures. However, thought should be given as to whether the document is outside the scope of the applicable laws, prohibits electronic signatures or is one that must be recorded in a public registry in order to perfected, as those will have different implications.
