Read on to understand when you may digitize your real estate transactions by using electronic documents and signatures.
Real estate is an industry heavy in agreements and disclosures to document obligations and duties performed. With electronic transactions now commonplace, regulations have followed to allow real estate licensees to provide transaction documents – including agreements and disclosures in sales, leasing and mortgage originations – to all participants electronically.
As a matter of public policy, a few extraordinary sales, leasing and mortgage-related activates, as well as most post-closing notices, require use of a printed copy, as listed below.
The use of electronic agreements, signatures and other documents in consumer, business and commercial transactions was first permitted in 2000 by California’s adoption of the Uniform Electronic Transactions Act (UETA). Soon after, federal law standardized the acceptance of electronic documents and signatures nationwide by the Electronic Signatures in Global and National Commerce Act (E-SIGN). [Calif. Civil Code §1633.1 et seq.; 15 United States Code §7001 et seq.; 12 Code of Federal Regulations §609.910(a)]
As a result, no person may deny the legal effect and enforceability of electronic documents and signatures due to their electronic format. [CC §1633.7]
Using electronic documents and signatures
An electronic document is any agreement or record created, generated, sent, received or stored by electronic means. [CC §1633.2(g)]
Real estate licensees frequently use digital forms, such as portable document format (PDF) files, online applications and software programs that allow licensees to prepare, deliver, store, download (receive) and print documents online or by e-mail.
An individual or agent of an entity entering into an agreement may use their electronic signature (e-signature) to indicate their intent to sign the document. An e-signature includes any electronic sound, symbol or process attached or associated with a document an individual uses to express their intent to sign the document. [CC §1633.2(h)]
E-signatures are broadly defined to accommodate the wide range of methods and technologies used to electronically sign documents. To comply, an agent obtains their client’s e-signature as:
- a digitized signature (similar in appearance to a wet signature);
- a unique password;
- a pin number; or
- the act of clicking an “I agree” button.
Typically, software programs provide for e-signatures in real estate transactions as they are the most secure and easiest methods — Adobe Acrobat and DocuSign, for example. These programs allow a client to create a digital signature they can insert into an electronic document they intend to sign. Transmission of e-documents via e-mail or other online form of delivery protects the signature under these programs. Importantly, programs provide the ability to authenticate the signature and verify the individual named as the signatory provided it.
Thus, a client’s digital signature on a purchase agreement creates an enforceable offer to purchase due to the legislatively approved and now common use of electronic transactions. Similarly, real estate agents may use electronic listing agreement forms to create an enforceable agency relationship with a client, as though it were a printed document manually signed by the client.
Notarization and acknowledgement requirements are satisfied by using e-signatures, as long as the notary public (or other authorized person) provides their e-signature and any mandated information. [CC §1633.11]
Requirements for electronic transactions
E-documents and e-signatures may be used to satisfy any law that requires documents and notices be written to be enforceable, such as those related to a note and trust deed in a consumer mortgage origination, a listing or purchase agreement on the sale of a residential property (with some public policy exceptions listed below) or leasing agreements. To comply with document posting requirements, a printed physical copy of the document will need to be used, as listed below. [CC §1633.7]
Thus, in addition to agreements in sales, leasing and mortgage originations, real estate licensees may deliver all required disclosures to clients electronically, including the agency law disclosure, Transfer Disclosure Statement (TDS), environmental hazard disclosure and natural hazard disclosure (NHD). [See RPI Forms 305, 304, 316-1 and 314]
However, for electronic documents to be enforceable, licensees need to confirm that clients:
- agree to receive transaction documents electronically [CC §1633.5(b)]; and
- have the ability to save any electronic document sent to them. [CC §1633.8(a), (c)]
A client can provide consent to receive documents either by an agreement authorizing the use of electronic documents, or by their conduct. Any agreement approving the use of electronic transactions must be provided electronically or, when printed/written, as a separate agreement intended to be used for the sole purpose of authorizing electronic transactions. The written authorization signed by the client may not be a provision within a written agreement that serves some other purpose. [CC §1633.5(b)]
A client who agrees to receive transaction documents electronically may withdraw their consent and refuse to conduct future transactions electronically. [CC §1633.5(c)]
Further, written document requirements that specify particular content or format for documents, such as font size or text, are not altered by the UETA. Thus, when delivered electronically, a document still needs to contain all mandated content. [CC §1633.8]
Retaining electronic records
Real estate brokers and their agents may electronically store documents, such as listing agreements and cancelled checks, to satisfy California Bureau of Real Estate (CalBRE) state recordkeeping rules. To use an electronic format to retain documents, a broker needs to ensure the digital document:
- accurately reflects the information in the agreement or other document being retained; and
- remains accessible for later reference. [CC §1633.12(a)]
For example, brokers and their agents need to retain records of all activities completed on behalf of a client, including trust fund accounting records and disclosure statements, for three years. UETA allows them to satisfy this requirement by storing all related documents in an accessible electronic format. [Calif. Business & Professions Code §10148]
Storing documents electronically also satisfies any requirement for a document to be provided or retained in its “original form.” [CC §1633.12(d)]
Excluded real estate transactions
Though most transactions requiring written agreements and disclosures may be conducted electronically, some real estate transactions are excluded from California’s UETA.
The following still need to be documented in paper format as they are not subject to UETA:
- all notices regarding a mobilehome tenancy required by the Mobilehome Residency Law, such as a notice of change of law, notice of maintenance charges, notice of the tenant’s right to inspection or notice of termination of tenancy [CC §798.14];
- a notice of a blanket encumbrance which includes a subdivision parcel [CC §1133];
- disclosures of defects on the first sale of a condominium unit converted from an existing dwelling [CC §1134];
- equity purchase (EP) agreements [CC §1695];
- disclosures required for shared appreciation loans for seniors [CC §1917.712];
- documents requesting a prospective tenant to pay an applicant screening fee [CC §1950.6];
- a notice of personal property remaining at a premise after the termination of tenancy [CC §1983];
- a notice of default (NOD) and foreclosure sale [CC §2924b];
- a notice of balloon payment [CC §2924j];
- a notice of the transfer of mortgage servicing [CC §2937];
- documents related to mortgage foreclosure consultants [CC §2945 et seq.];
- a notice of delinquent mortgage payments [CC §2954.5];
- disclosures required for purchase money liens on residential property [CC §2963];
- conditional sales agreements and security agreements for mobilehomes and manufactured housing [Calif. Health and Safety Code §18035.5];
- a notice of cancellation or non-renewal of homeowners insurance [Calif. Insurance Code §§662, 678]; and
- documents subject to the Uniform Commercial Code on commercial transactions, such as the UCC-1 Financing Statement used to create a lien on personal property to finance real estate. [CC §1633.3(c)]
Editor’s note – Though the above documents are not covered by UETA, licensees may provide these electronically if any other law controlling these documents permits electronic transmission.
Additionally, use of electronic documents does not alter or replace any requirements that a notice, disclosure or other document be posted, displayed or publicly affixed. [CC §1633.8(b)]
For example, landlords may not electronically deliver a Notice to Pay Rent or Quit, or a Notice to Vacate. Likewise, electronic documents may not be used to satisfy requirements for posting a Notice of Sale for foreclosed property. These documents still need to be physically delivered or posted on a property. [CC §§3094, 1946, 2924.8 and 2924f(b)]
Further, an unlawful detainer (UD) action may not be served electronically, and needs to comply with requirements for posting a physical copy. [CC §§1633.3(c), 1162 et seq.]