20 MAY / JUNE 2023 Maria M. Vladimirova Senior Associate Krieg DeVault LLP MVladimirova@ KDLegal.com Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Electronic Mortgage Loan Transactions COMPLIANCE CONNECTION Answer: Yes, Indiana law permits residential mortgage loan transactions to be completed using an entirely electronic online process, including execution of loan documents, an electronic closing (e-closing) and recording of the conveyance documents via an electronic mortgage transaction. Acceptance and validity of electronic signatures has been around for over two decades and is not a new concept in Indiana. Indiana adopted the model Uniform Electronic Transaction Act in 2000, ensuring that electronic signatures were given the same legal effect as a traditional wet ink signature. Indiana law defines an electronic signature as an “electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.”1 This allows for various methods of electronically signing a document, including clicking a button or signing a document via touchscreen. As such, signatures obtained in connection with a residential mortgage transaction are considered valid and legally enforceable under Indiana law. Indiana also adopted the remote online notary statute to permit a remote notary public to perform “remote notarial acts” such as “taking an acknowledgement, administering an affirmation or oath, taking a verification on an oath or affirmation, attesting to or witnessing a signature, and attesting to or certifying a copy of a document of record.”2 The remote notary public must be physically present in the State of Indiana, but may appear by audiovisual communication approved by the Indiana Secretary of State3 to perform identity verification; meanwhile, the individuals e-signing the documents may be located anywhere in the United States when executing, so long as the remote notary public can verify their identity. Additionally, the remote notary public must provide an authentication of their remote notarial act by including an “electronic notarial certificate.”4 Once the documents are electronically signed, an e-closing will not present any issues recording the documents with county recorders’ offices. As of July 1, 2022, Indiana county recorders are required to accept electronic signatures as original signatures in real estate conveyance documents.5 Note that this does not prevent a bank from submitting tangible paper copies with wet ink signatures to the county recorders.6 When considering the potential risks associated with an electronic mortgage transaction, you should consider the same risks as any residential mortgage transaction closed in person: risk of foreclosure or risk of litigation. The fact that a bank does not maintain possession of the physical mortgage does not preclude the bank from filing a pleading on a copy, which is presumed validly executed unless disputed by the defendant under oath.7 A bank may still enforce its residential mortgage loan documents, even if it’s not in possession of the originals. However, to avoid questions of whether original documents are available for inspection, or even lost, it’s advisable that a bank have its customers execute a formal agreement or acknowledgement indicating Question: Does Indiana law permit an entirely electronic mortgage loan transaction? If so, what are the potential risks on the bank’s ability to enforce its security interests in the event of a borrower default?
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