The world is getting smaller every day. It’s also getting faster. Those feelings are even more pronounced in real estate than in some other industries. In many ways, the real estate industry has become more efficient, more accommodating, and more accessible. However, it has also become more fraught with hackers, wire fraud, notary fraud, and, frankly, mistakes created in an environment where people sign so fast that they not only miss a signature but perhaps have no idea what they are signing. Unfortunately, that speed can also cause realtors to want to grab a wave they have no idea how to ride, creating mistakes and, potentially, serious liability.
How do we as real estate professionals surf those huge, fast waves we haven’t seen before, yet want to be able to tame? Well, if we were to teach you to actually surf waves in the ocean, we’d both be out there and in a lot of trouble. Luckily, while real estate practice is similar these days to surfing large, dangerous waves, I do know something about safely and correctly surfing a real estate transaction, no matter the size or speed of the wave; I even know some tricks I can teach you to impress the client watching you go from the shoreline (or California, or Germany, or in the seat next to you, when closing occurs).In this three-part series,
I’m going to tell you about a few waves you might encounter in the real estate ocean. Despite my best efforts, some of you will attempt to surf them without knowing how. Some of you might stay on the board, but you had no business being out there, to begin with without knowing more about the wave. You got lucky. However, some of you will fall off because you didn’t want to miss the wave, so you jumped on the board rashly and then just prayed for the best.
When that happens, some of you will tuck and roll, and get back to the surface without much harm done. Again, you got lucky. Some of you, sadly, may crash into some coral or come across a shark, because you caught that wave and tried to ride it yourself without knowing and avoiding some of these pitfalls, in a rash attempt to catch a fast and large wave yourself, without asking for help.
Part 1 - The Rogue Wave -
Remote Online Notarization and Foreign “notaries” Realtors, in my experience, and without any negative tone intended, somewhat disregard the importance of notaries, their roles in a real estate transaction, and the importance that things are notarized correctly. In their defense, almost everyone does. They don’t see the potential trouble coming. They don’t expect there to be an issue with the notary, be it a third party or even themselves. The potential result is a rogue wave, blasting the surfer and leaving them wondering who on earth the trouble arose from based on a notary principle. This is a cautionary tale about one such “surfer.” A busy and well-respected realtor in town once handed me a deed he’d notarized. I could tell he was proud of having notarized it. In his mind, he solved a difficult notarization problem and helped the parties involved not have to endure a closing delay. Why wouldn’t he be proud? It all came from a great place. He told me the client was in Europe, and he notarized it under the Emergency Remote Online Notary laws that were temporarily passed in North Carolina.
There were a few issues with this wave he decided to ride without asking the attorneys involved. First, he had a notary public commission, not an E-notary public commission, which is a different thing altogether. While that was allowed under the emergency law, it left him without the knowledge to know what he was supposed to do during the actual video session, and he apparently didn’t look it up. Taking a moment to check his plan with the attorneys, a plan which was brand new to him, no doubt might have caused him to “miss the wave” in his mind.
Secondly, probably as a result of never taking that 2nd E-notarization course nor doing the research first, he did not follow the temporary statute’s requirements, which included documentation/recording of the entire experience, certain questions had to be asked during the video conference, and the notary acknowledgment had to be filled out in a very specific way. (This is why you saw very little of this on real estate transactions, by the way. It has been often simply easier to send it to the clients and have them sign with a nearby notary rather than jump through the statute’s hoops, in most cases)
Thirdly, and most importantly, the client was in Europe! At least in recent history, a notary public has never been able to notarize for a person outside of North Carolina. See G.S. § 10B-116. Prohibitions:
“An electronic notarization shall not be performed if the signer of the electronic document: (1) Is not in the presence of the electronic notary at the time of notarization. In North Carolina, even under the Emergency and upcoming Remote Online Notary act, presence is defined, among some other things, as being located in a county in North Carolina. He could have, had he done the rest correctly, sat in Haywood County and notarized over video for someone in Wilmington, NC. However, he was not legally able to notarize using this method for someone just down in Greenville, SC. Not only was that deed now invalid for what we knew to be an invalid notary acknowledgment, but the realtor was, had he been caught doing this and us using it at closing, subject to legal penalties. See G.S. 10B-60 to read about potential penalties for notarization missteps.
What’s really unfortunate is that the realtor took great offense at what he took as an audacious assertion, as politely delivered as possible, that his notary acknowledgment wasn’t valid and he insisted that his European notary acknowledgment was valid. It was not, and, of course, closing delays resulted. Had he reached out to me with his plan before doing this, we could have helped him correctly ride that wave. The Remote Online Notary Act will replace the Emergency online notary laws on July 1, 2023.
Until then, and after, please contact me with questions about this if you should hope to notarize your client’s documents over video. If you take away one thing from the Rogue Wave example, please take away this: remote online video notarization laws do not allow a North Carolina notary to notarize for anyone outside of the state of North Carolina, there are limitations to what types of documents you can notarize in this manner, and if you fail to follow the specific requirements, you could be subject to criminal penalties, discipline/removal by the North Carolina Secretary of State as a notary public, and, potentially and inadvertently, invalidate your client’s notarized legal document. Foreign “notaries” are another set of waves that come up. The long and short of navigating a foreign notary rogue wave is that the United States recognizes some types of foreign notaries/counterparts and doesn’t recognize others. These distinctions are currently set forth by the “Hague Treaty Convention of 1961.” If you search that online, you can obtain a list of countries the United States does and does not recognize for notary acknowledgment purposes. The answers might surprise you.
Why would a seller be wary of this method of financing a purchaser and when would it not help in a transaction?
First and foremost, while I believe the risk to be low that a seller loses substantial money doing this, it’s still their risk to take.
Should the debtor default on the payments they are to make under the Note, the lender would have two options for remedy. Their first option is that they can sue the debtor for a monetary judgment based on the remaining, unpaid obligation on the Note.
The second option is to file for a foreclosure sale of the property based on the deed of trust lien on the property. Sellers may not want to ever have to deal with suing the purchaser in that instance or hiring the trustee to hold a foreclosure sale on a property, which can be a lengthy, months-long process, during which perhaps they aren’t receiving those expected payments from the purchaser on which they might rely. Second, if the sellers themselves have a deed of trust lien on the property and owe someone money themselves, then they’d typically need to pay that off at the purchaser’s closing.
For example, did you know that we do not recognize Canadian notary counterpart acknowledgments?
We do recognize Mexican notary counterpart acknowledgments. We don’t recognize Egypt.
We do recognize Russia’s. In those countries not recognized (and sometimes even in the ones that are), your best bet will be to get your clients to an American embassy. We can help with that.
Even in the countries we recognize, you have to make sure the correct type of professional is handling the acknowledgment. Some countries accept these types of acknowledgments by two or three different professionals whereas we may need a particular one of them to handle it for recognition in the United States.
Grab your surfboard and call us so that we can help you navigate this wave, should you wish to ride it well.
I’m here to help and Cowabunga, my friends!
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