Electronic Recording Legislation Around the Corner
Chris Burti, Vice President and Legal Counsel

There is a bill currently before the Senate that is intended to expand the authorization initially granted to Mecklenburg and Cabarrus Counties to undertake electronic recordation by the Register of Deeds. Senate Bill 1094, entitled AN ACT TO AUTHORIZE THE REGISTER OF DEEDS IN CERTAIN COUNTIES TO ACCEPT ELECTRONIC RECORDS FOR FILING (Electronic Filing/Register of Deeds), has been referred to the Judiciary I Committee. The text follows.

SECTION 1. G.S. 47-30(b) reads as rewritten: "(b)Plats to Be Reproducible. - Each plat presented for recording shall be a reproducible plat, either original ink on polyester film (mylar), or a reproduced drawing, transparent and archival (as defined by the American National Standards Institute), or an electronic record as defined in G.S. 66-312(8), and submitted in this form. The recorded plat must be such that the public may obtain legible copies. A direct or photographic copy of each recorded plat shall be placed in the plat book or plat file maintained for that purpose and properly indexed for use. In those counties in which the register has made a security copy of the plat from which legible copies can be made, the original may be returned to the person indicated on the plat." SECTION 2. G.S. 161-14 is amended by adding a new subsection to read: "(b1)The register of deeds is authorized to accept electronic records as defined in G.S. 66-312(8) for filing in accordance with the provisions of this section. The fees for recording of an electronic record shall be based on the number of pages and formatting of the electronic record if it were printed by the register of deeds following recording."

SECTION 3. This act applies only to the counties of Anson, Cumberland, Guilford, Hyde, Iredell, McDowell, Orange, Pender, Rockingham, Wake, and Watauga.

SECTION 4. This act is effective when it becomes law.

There is a great deal of interest by Registers of deeds across the State with push to make this legislation effective in all counties. The problem with the legislation as presently drafted is that it provides no guidance and no standards for electronic recording. Without such standards, it will become possible that standard instruments in standard formats may be accepted by some counties and not by others. Authentication and archival standards may be improvidently adopted on the local level that could create conflicts. As we understand, the bill will likely undergo serious study. It should be noted that the North Carolina Secretary of State has not yet promulgated standards for electronic notarization. Until this occurs, mortgage satisfactions will remain the most easily facilitated form of electronic recordation.

The National Conference of Commissioners on Uniform State Laws (NCCUSL) is an organization comprised of more than 300 lawyers, judges and law professors, appointed by the states as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands, to draft proposals for uniform and model laws. They are nearing adoption of the Uniform Real Property Electronic Recordation Act. It should be noted that the draft uses the term "recorder". We have tailored our discussion to the offices of the Register of Deeds because that is the source of the pending legislation. It is likely that the Legislature will consider the Model Act and apply it to all public archives. This would include all of the county Clerk of Superior Court’s and the Secretary of State’s records, among others.

The Introductory Note to the most recent draft states:

"The status of electronic information technology has progressed rapidly in recent years. Innovations in software, hardware, communications technology and security protocols have made it technically feasible to create, sign and transmit real estate transactions electronically."

"However, approaching the end of the 20^th Century, various state and federal laws limited the enforceability of electronic documents. In response, the Uniform Electronic Transactions Act (UETA) was approved by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1999. As of February 15, 2004, UETA had been adopted in 44 states and the District of Columbia and was under consideration in two others. The federal Electronic Signatures in Global and National Commerce Act (E-Sign) was also adopted in 2000. The two acts give legal effect to real estate transactions that are executed electronically and allow them to be enforced between the parties thereto."

"Nevertheless, even though documents that result from electronic transactions are valid and enforceable between the parties, there is no broad agreement as to whether those documents may be recorded in the various local land records offices in the several states. Laws and regulations in many states frequently limit a recordable document to one that is in writing or on paper or to one that is signed. Being electronic and not on paper, and not having a handwritten signature, electronic documents might not be recordable under the laws of some states (see Op. Cal. Atty. Gen. No. 02-112 (Sept. 4, 2002)). "

"Limited experiments with recording electronic documents have been started in a few counties in a few states. These experiments depend, however, on the initiatives of individual recorders. They are piecemeal and offer only limited interoperability among the recording venues. And the experiments do not provide a uniform legal standard for the acceptance and processing of electronic documents."

"In response, a few states have convened study committees or task forces to consider the question of recording electronic documents (see Report of Iowa State Bar Ass’n, Real Estate Modernization Comm., draft of Ch. 558B – Iowa Electronic Recording Act (2001); Conn. Law Revision Comm., An Act Establishing the Connecticut Real Property Electronic Recording System (Conn. Gen Assembly, Judiciary Comm., public hearing Feb. 20, 2004)). In 2002 a drafting committee was established by the NCCUSL Executive

Committee to draft a Uniform Real Property Electronic Recordation Act. The Committee’s decision followed a recommendation of the NCCUSL Committee on Scope and Program. Their actions were in recognition of a strong recommendation from the Joint Editorial Board on Uniform Real Property Acts that a uniform act be drafted.

The following act was drafted to authorize the receipt, recordation and retrieval of documents in electronic form. Its fundamental principle is that requirements of state law describing or requiring that documents be on paper or in writing are satisfied by a document in electronic form. Furthermore, any requirement that the document contain a signature is satisfied by an electronic signature. The act also establishes a state electronic recording commission that is charged with adopting standards for the receipt, recordation, and retrieval of electronic documents."

The operative provisions of the model law may be summarized as follows.

Section 2 sets out the definitions, the significant ones are quoted as follows:

(1) "Document" means information that is:

(A) inscribed on a tangible medium or is stored in an electronic or other medium and is retrievable in perceivable form; and

(B) eligible to be recorded in the land records maintained by the [recorder].

(2) "Electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

(3) "Electronic document" means a document that is received by the [recorder] in electronic form.

(4) "Electronic signature" means an electronic sound, symbol, or process attached to or logically associated with a document in accordance with standards of the state electronic recording commission and executed or adopted by a person with the intent to sign or verify the document.

(5) "Paper document" means a document that is received by the [recorder] in a form that is not electronic.

The definition of a document in the model act is derived from the definition of "record" in the Uniform Electronic Transactions Act (UETA) The term "record" has a different meaning in real estate law and practice. If the term "record" were used in this act as it is used in UETA, it would create ambiguity that would likely lead to confusion and misinterpretation. The committee selected the defined term "document" in this act as a decision to not use the UETA defined term "record". The comment to the draft notes that these terms "are so ingrained in the lexicon of real estate recording law and practice that it would not be productive to attempt to change them by this act."

Section 3 sets out an express authorization for the recording of electronic documents. North Carolina has statutory authorization for this but it is less than clear and is debatable. The authority is discretionary and does not mandate that the Register of Deeds must implement electronic recording.

The legislature will have to consider whether collateral real property laws will have to be modified and if so, how. For example, electronic recording systems will not cease to operate when the Register of Deeds locks their office at night or over the weekend. We would expect that electronic recording systems would accept electronic documents 24 hours per day and seven days per week. If a conveyance is filed electronically on Saturday, the system may collect the document in a queue to be processed and indexed on Monday morning. Searching the electronic recording system on Sunday will not disclose the conveyance and may accept another conveyance filed electronically on Sunday. Another system might accept and index properly verified documents automatically. The issues of whether recording should not be considered to have occurred until indexing is complete or mandating automatic systems are issues that the Legislature should consider.

Section 4 authorizes and requires the Register of Deeds to continue to accept paper documents for recording and place entries for both types of documents in the same index.

The Register of Deeds may convert paper documents accepted for recording into an electronic form and may convert information recorded prior to accepting electronic documents for recording into electronic form.

Section 5 will likely be the provision that will prove to be the most important in the successful implementation of electronic recording. It provides for a state electronic recording commission, which will adopt standards that it considers necessary or desirable to facilitate an electronic recording system. A Register of Deeds who elects to accept electronic documents will be required to comply with the standards promulgated by the

commission. Subsection (d) requires the commission to "consider the needs of counties of varying size, population, resources, and capability; the standards of national standard-setting organizations; and the views of interested persons for the purposes of obtaining guidance and assuring uniformity."

The composition of the commission will be critical for its success. As noted a final law adopted in North Carolina will likely involve all public record repositories. While it is apparent that appointment of experienced and knowledgeable representatives of the various public archives is essential, professionals who use and interpret those documents for validity will also be key. One would hope that expertise in the form of professionals in communication, security and archives in electronic media would also be mandated.

Section 6 deals with verification notarization and acknowledgment. This section is derived from UETA § 11 and will require action from the Secretary of State prior to full implementation of any North Carolina legislation.

The remaining sections deal with fees, electronic payment, construction, uniform application and space does not permit a fuller discussion. The full text of the Model Act can be found at:

http://www.law.upenn.edu/bll/ulc/urpera/Mar2004mtgdraft.htm

Attorneys Not Subject to Gramm-Leach-Bliley Act
Sarah Friede, Legal Counsel and Senior Underwriter

Attorneys in North Carolina and every other jurisdiction were granted a well-deserved reprieve on April 30, 2004, when a decision handed down by the U.S. District Court for the District of Columbia relieved attorneys from having to comply with the privacy provisions of the Gramm-Leach-Bliley Act of 1999.

Title V of the Act requires financial institutions that form customer relationships with consumers to disclose, in writing, what the institutions’ policies are regarding disclosure of individually identifiable personal information, as well as the opportunity for consumers to opt out of those disclosures to third parties. Only natural persons are entitled to Constitutional privacy protections, so the Act does not apply to institutional or corporate clients. The Federal Trade Commission was authorized to enforce the privacy policy provisions and had announced that law firms and sole practitioners would be considered financial institutions and thus subject to the disclosure requirements if the lawyers or firms "significantly engaged in financial activities."

The American Bar Association, backed by twenty-six other bar associations, challenged the decision by the FTC on various grounds: first, that attorneys are bound by an ethical duty of confidentiality to their clients and by contractual agreements that prohibit any such use of client information, which impose higher standards than the Act; second, that all states regulate the legal profession and impose stricter guidelines than the Act regarding confidentiality; third, that enforcement of the Act would infringe significantly on the attorney-client relationship and could actually destroy attorney-client privilege in some circumstances; and fourth, that imposing the rules would unduly burden small firms and sole practitioners.

The ABA also made clear in its lawsuit that it supports the spirit of the Act, but that imposing the disclosure requirements on attorneys would do nothing to promote consumer protection or privacy.

The U.S. District Court agreed with the ABA, holding that the FTC’s decision to impose the requirements of the Act on attorneys was beyond its statutory authority and constituted arbitrary and capricious agency action. The FTC has 60 days within which to file an appeal, and it has not announced whether it will appeal. The FTC has agreed that attorneys who choose not to comply with the Act within the time frame for filing an appeal will not be subject to penalties if the District Court ruling is overturned.

The title insurance industry continues to be subject to Title V requirements. Statewide Title, Inc, attaches a privacy policy disclosure to every owner’s policy it issues for non-corporate or non-institutional owners. We at Statewide Title view compliance with the Act as just one more way that we can help protect your clients and all consumers in North Carolina.