Colorado Implements Level 3 Electronic Recording
Colorado Real Estate Journal, November 3, 2004
Colorado will soon be able to record completely paperless real estate documents. For some time, Douglas County and Boulder County have been accepting electronic filings from approved vendors and the title companies who work with those vendors. So far, all of those electronically recorded documents began life as paper documents with pen-and-ink signatures, and were then converted into electronic images and transmitted to the Clerk and Recorder. The next step is to generate documents that never existed in paper form. The "document" is the electronic file, and the signatures of the parties, and of any notary acknowledgement on the document, are also electronic. Under rules that take effect on November 30, 2004, notaries will be able to notarize documents electronically in Colorado.
In 1999 Colorado passed two statutes authorizing the use of electronic signatures. Then, in 2000, Congress passed the "Electronic Signatures in Global and National Commerce Act" ("E-SIGN") which provides that no transaction may be rejected or considered invalid solely because it is electronic. The states have the option of overriding E-SIGN by adopting UETA, the Uniform Electronic Transactions Act. Colorado adopted UETA in the 2002 legislative session. In the 2004 legislative session, Colorado enacted House Bill 1300, which provides more detail about electronic notary signatures, and gives the Secretary of State the authority to issue document identification numbers to notaries.
Electronic signatures are not really new. In an 1869 decision, the New Hampshire Supreme Court said, "when a contract is made by telegraph [rather than by a hand written letter] ... [it does not] make any difference that in one case common red ink is used, while in the other a more subtle fluid, known as electricity, performs the same office." Howley v. Whipple, 48 N.H. 487 (1869). "Electronic" under UETA means "relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities." It is very broad and inclusive. A digital pager, a fax machine, and digital voice mail are all "electronic." An "electronic record" is a "record created, generated, sent, communicated, received or stored by electronic means." An "electronic signature" under UETA is "an electronic sound, symbol or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record." It isn't hard to discern a qualitative difference between clicking "I accept" on a web page so you can buy a book online, and signing a deed or deed of trust, but the bare definition of "electronic signature" does not speak to encryption, security, or fraud protection.
Both UETA and the Notaries Public Act contemplate electronic notarization. UETA provides:
If a law requires a signature or record to be notarized, acknowledged, verified, or made under oath, the requirement is satisfied if the electronic signature of the person authorized to perform those acts, together with all other information required to be included by applicable law, is attached to or logically associated with the signature or record. C.R.S. §24-71.3-111.
"Applicable law" would include the requirements that the notary must meet before determining that it is appropriate to acknowledge a real estate document, i.e., that it is signed in the notary's presence, that the signer's identity has been satisfactorily established, and that the signer knew what he or she was doing and intended to do it. House Bill 1300 tightens up the UETA definition of electronic signature with respect to the signature of a notary. C.R.S. §12-55-106.5 provides that the notary's electronic signature must contain, among other things, a document authentication number issued by the Secretary of State, and further requires the notary's electronic signature to conform to any standards promulgated by the Secretary of State. To notarize electronically, notaries will register their electronic signatures with the Secretary of State, and the Department of State will issue them randomly-generated document identification numbers in an electronic log. The Secretary of State will maintain a record of these numbers, and the notaries will use them to create their official electronic signature on each document. The numbers must be protected, just as notaries are currently required to keep their seals safe from misuse.
Third parties will be able to inquire of the Secretary of State whether the identifying number is valid and belongs to the notary who used it, whether the signer named in the journal applied the electronic signature in question to a specific document on a given date, and whether the notary's commission is still in effect. This is analogous to the process available for resolving questions about a document that was notarized in a traditional manner.
The parties to real estate documents may determine for themselves whether to use other methods of securing the executed document. One simple but apparently effective way of doing that is to password-protect the electronic file, and apply a digital signature. Adobe Acrobat software has the capability of doing both of those things. The digital signature can be generated internally, or it can be obtained from a third-party signature authority. The Colorado legal requirements are deliberately technology-neutral, and do not dictate what the "standard in the industry" might turn out to be. While that process continues, and wherever it leads, Colorado real estate transactions will have the capability of going completely paperless with a relatively low-tech, practical solution to the problem of authenticating electronic notary signatures.
