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» VISIT US ONLINE @ DSNEWS.COM COVER STORY TECH FOCUS MARKET PULSE Electronically signed promissory notes are landing on court dockets. Here's what pros need to know to avoid legal wranglings and get their judicial foreclosures off the ground. By G. Stephen Caravajal Jr. In an age of exponentially increasing electronic transactions, eNotes are a natural step in mortgage lending toward increasing efficiency, reducing costs, and streamlining the loan origination and closing processes. There's no doubt as to the benefits gained from electronic mortgage transactions versus the traditional mortgage transaction when one considers the amount of time, space, and resources saved. The arrival of electronic mortgage transactions was inevitable, and they quite possibly may become the eventual standard as electronic commerce continues to evolve. First and foremost, an eNote is an electronic record that, if created, executed, and maintained correctly, is the equivalent of a traditional, written promissory note. More specifically, a proper eNote is considered a "transferable record" as defined by both the Uniform Electronic Transactions Act (UETA)1 and the Electronic Legal Support for eNotes The need for a uniform system governing electronic transactions was quickly identified, as one general assembly described it, to "enhance and promote the reliability of electronic commerce" because "electronic commerce is expanding rapidly and is an engine for economic growth."5 The UETA and ESIGN Act were promulgated in 1999 and 2000, respectively, in order to ensure the validity and enforceability of electronic contracts and electronic signatures.6 Their approach is noteworthy in that neither law attempts to insert its concepts of a transferable record or controller into the UCC; instead, they extrapolate relevant concepts from Article 3 in order to create an equivalent framework for eNotes.7 Identifying the need to assist and prepare states for the era of electronic commerce, the UETA was created to provide a uniform set of rules to govern electronic transactions.8 To date, POINT— COUNTERPOINT What Is an eNote? Signatures in Global and National Commerce (ESIGN) Act2. Two of the defining characteristics of an eNote are that it bears an electronic signature and it is created and stored electronically. Naturally, these distinguishing characteristics are at the heart of any legitimately contested foreclosure when it comes to proving up your eNote. It should come as no surprise that Fannie Mae and Freddie Mac standardized a uniform eNote that closely mirrors the traditional uniform note. For example, the Multistate Fixed Rate Note(form 3200) and the reciprocal eNote (form 3200e) are nearly identical but for Section 11 of the eNote, which addresses its electronic nature and characteristics.3 All the standard terms and conditions are also present in the eNote, so there shouldn't be confusion when it comes to demonstrating the intent of the parties. To that end, Section 11 of the eNote operates not only as an additional acknowledgement of the electronic nature of the eNote but also reflects the borrower's consent to participation in the electronic transaction and agreement that the eNote is a valid and binding agreement. Section 11 also makes reference to both the UETA and ESIGN Act and discusses several key issues such as the eNote being a transferable record, how the eNote may be transferred, and how the eNote may be converted from an electronic record to a paper-based note. As an aside, it is possible for these types of electronic transactions to also involve an eMortgage, which secures the eNote. However, when reviewing the loan instruments in preparation for foreclosure, you'll notice the accompanying security instrument is probably a traditional, paper-based mortgage. Since only a very limited number of jurisdictions accept electronic documents for recording, an eNote is often accompanied by the traditional, paper-based mortgage rather than an eMortgage.4 LEGISLATIVE REVIEW But the UCC does not expressly address eNotes, so what must we do to ensure eNotes as part of the foreclosure landscape do not derail the progress we made? What exactly is an eNote? How does it differ from a standard, written promissory note? How will this affect your foreclosure, and what must we do differently to demonstrate the eNote's validity and enforceability to a court? TECH FOCUS I n the ever-changing landscape of mortgage foreclosures, one of the latest issues to confront the judicial system is electronically signed promissory notes, otherwise known as "eNotes." While eNotes aren't exactly new, they may be new to some servicers or attorneys and are certainly new to several courts. Our industry only recently began to overcome many of the tedious issues and the incessant "lack of standing" defenses routinely raised by defendants with the courts finally starting to consistently apply note holder concepts under the Uniform Commercial Code (UCC). 1 UETA §16. 2 15 U.S.C. §7021. 3 Guide to Delivering eMortgage Loans to Fannie Mae (V. 2.5), §3.3 and Appendix A. 4 Id, at §2.1. 5 Springfield Township v. Mellon PSFS Bank, 586 Pa. 1, 13 (2005).6UETA §6 & 7; 15 U.S.C. §7001(a). 7 Case Closed: eNotes are Legal, An Analysis of eNote Enforceability Nationwide, a white paper jointly issued by Mortgage Industry Standards Maintenance Organization (MISMO), the Electronic Signature and Records Association (ESRA), and the American Land Title Association (ALTA). 8 Uniform Law Commission's Electronic Transactions Act Summary, www.uniformlaws.org/ActSummary.aspx?title=Electronic Transactions Act. 59

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