E-Signing Loan Documents: Efficiency and Security—CRE Not Quite There Yet.
In today’s fast-paced commercial real estate market, the ability to electronically sign loan documents can transform the closing process, making transactions more accessible and efficient. Traditionally, a commercial real estate loan transaction involved a signing ceremony, where all parties gathered in person around a table to physically sign loan and transfer documents. While the trend has certainly moved toward remote or “escrow” closings, allowing signatories to sign from their own locations, original “wet” signatures are still required for closing attorneys and title companies. E-signatures would allow borrowers, lenders, and attorneys to execute documents electronically, eliminating the need for in-person meetings or “wet” signatures, thus expediting deal timelines. Unfortunately, the commercial real estate (CRE) loan industry has yet to fully embrace this change.
E-signatures offer undeniable convenience, and in New York, they are legally recognized and enforceable in most real estate transactions. Electronic signatures are governed by the Electronic Signatures and Records Act (ESRA), which aligns with the Electronic Signatures in Global and National Commerce Act (E-SIGN) and the Uniform Electronic Transactions Act (UETA). To be valid and enforceable, three conditions must be met: (i) the signatory must “intend” to sign the document electronically, (ii) the signature must be associated with the documents intended to be signed, and (iii) the record must be capable of being retained and reproduced. Currently, the only exception in New York where original documents are required for real estate transactions is for documents that need notarization. However, this issue is addressed by the allowance of electronic notarization, which is becoming more common in e-signed transactions.
While e-signatures are legally enforceable, their use in commercial real estate loan documents is still limited. Some residential loan transactions and a select few institutional commercial lenders have adopted this practice, but most institutional commercial lenders have yet to embrace it. Retention of records is a major consideration, as are security and technology concerns that lenders must address before engaging in e-signed transactions.
As technology continues to reshape commercial real estate loan transactions, embracing e-signatures may become essential for staying competitive in the industry. The key will be balancing the convenience of digital transactions with the potential security concerns.
