proving “originality”and ownership of electronic mortgage notes
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8/9/2019 Proving “Originality”and Ownership of Electronic Mortgage Notes
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August 24, 2007 Version 1.0 PAGE 1
Digital Evidence – Testing Document Authenticity
Proving “Originality” and Ownership of ElectronicMortgage Notes
Grace Powers, 1st Vice President, Sr. Legal Counsel
Countrywide Financial Corporation
June 1, 2007
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Digital Evidence – Testing Document Authenticity
From Paper to Electronic Notes
The mortgage market’s continued ability to lend money relieson the liquidity of promissory notes secured by real property.
Paper promissory notes are endorsed “in blank” so that
whoever has “possession” of the note is considered a holder,holder in due course, or purchaser.
Electronic Note (“eNote”) challenges:
There is no such thing as an “original” note.You can’t take “possession” of an eNote.
How do you prove that you’re the owner of an eNote?
How do you prove that the eNote has not been altered?
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Digital Evidence – Testing Document Authenticity
Current eMortgage Infrastructure
ESIGN and UETA legalize the use of electronic records andsignatures.
Overlay statutesUniform Real Property Electronic Recordation Act(URPERA) and other state laws authorize electronicrecording by county clerks and recorders.
Industry standards and utilities:MERS® eRegistry
Mortgage Industry Standards Maintenance Organization(MISMO)
Standards and Procedures for Electronic Records andSignatures (SPeRS)
Secure Identity Services Accreditation Corporation (SISAC)
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Digital Evidence – Testing Document Authenticity
State eCommerce Law – UETA
The Uniform Electronic Transactions Act (UETA) wasintroduced in 1999. Thus far, 46 states plus DC haveadopted UETA in some form.
UETA’s Objective: Ensures that transactions in the electronicmarketplace are as enforceable as transactions memorializedin paper.
Section 7 of UETA provides:
A record or signature may not be denied legal effect orenforceability because it is in electronic form.
A contract may not be denied legal effect or enforceabilitybecause solely because an electronic record was used in itsformation.
Any law that requires “a writing” will be satisfied by an electronicrecord.
Any signature requirement in the law will be met if there is anelectronic signature.
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Digital Evidence – Testing Document Authenticity
Federal eCommerce Law - ESIGN
For those states that have not passed a uniform version ofUETA, the Electronic Signatures In Global and NationalCommerce Act (ESIGN) would control.
ESIGN’s Relationship to UETA:If state adopts uniform UETA, ESIGN may be superceded inwhole or in part.
If there are non-uniform amendments to UETA that conflict with
the main provisions in ESIGN, ESIGN would preempt UETA.
Whether or not a state has passed UETA, ESIGN requiresconsumer consent before one can deliver disclosures that arerequired to be “in writing” to consumers.
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Digital Evidence – Testing Document Authenticity
ESIGN / UETA Transferable Record Treatment forNegotiable Notes
An electronic record that would otherwise be anegotiable promissory note under UCC Article 3
may be a “transferable record”.
The transferable record concept creates a structurethat allows for the transfer or assignment of anelectronic promissory note.
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Digital Evidence – Testing Document Authenticity
Establishing Control of an Transferable Record
The concept of “control” under ESIGN and UETA establishesa parallel structure for the transfer and negotiability of anelectronic promissory note to a third party so that the thirdparty transferee has the same rights and defenses that are
held by a “holder,” or “holder in due course,” under the UCC.Can be thought of as equivalent to possession of a papernote plus delivery and endorsement.
A person has “control” of a transferable record, meaning theexclusive right to enforce or transfer ownership of theunderlying debt obligation if a system “employed forevidencing the transfer of interests in the transferable recordreliably establishes that person as the person to which the
transferable record was issued or transferred.”Standard stands on its own, but there is a safe harbor.
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Digital Evidence – Testing Document Authenticity
Safe Harbor for Meeting Control Requirement
Six safe harbor elements:Single authoritative copy exists that is unique, identifiable andunalterable without detection.Authoritative copy identifies the person asserting control aseither to whom the transferable record was issued or the issuer.
- Example: MERS eRegistry was designed as the industryutility serving as the central location to identify the currentperson in control and the location of the authoritative copy ofthe promissory note.
Authoritative copy is communicated to and maintained by theperson asserting control or its designated custodian.Copies or revisions that add or change an identified assignee ofthe authoritative copy can be made only with the consent of theperson asserting control.
Each copy of the authoritative copy and any copy of a copy isreadily identifiable as a copy that is not the authoritative copy.Any revision of the authoritative copy is readily identifiable asauthorized or unauthorized.
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Digital Evidence – Testing Document Authenticity
MERS ® eRegistry
Provides ESIGN / UETA Safe Harbor compliance
infrastructure for negotiable instrumentsIdentifies the Controller and Location of the AuthoritativeCopy of the eNote
Does not store the eNote itself
In production as of April, 2004
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Digital Evidence – Testing Document Authenticity
Definition Translation
Paper World Electronic World
Negotiable Instrument Transferable Record (“eNote”)Original Note Authoritative Copy of eNote
Possession Control
Investor/Holder Controller
Custodian Location (eVault)
Endorsement Transfer of Control
Holder in due course Transferable Record Audit trail
Servicer Controller’s Delegatee
*Source: MERSCORP, Inc. Used with permission.
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Digital Evidence – Testing Document Authenticity
Importance of SISAC- for eMortgages
MISMO eMortgage Closing Guide recommends that a tamper-evident digital signature be applied to an electronic document topreserve the document’s integrity.
The certificate used to implement a tamper evident-digital signature
should be an organizational certificate obtained by a SISACaccredited issuer.
See www.mismo.org for Closing Guide and other guidance.
SISAC-accredited digital certificates may provide assurance
of:A signer’s identity;
That the signature is valid; and
That the electronic document has not been tampered with after a
tamper-evident digital signature has been affixed.Goal - Secure, reliable and enforceable eMortgages
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Digital Evidence – Testing Document Authenticity
Tamper-Evident Seal
A "digital fingerprint" or "hash“ that consists of aseries of letters and numbers that uniquely describe a
document.
If the document is altered in any way, the "hash" for
the altered document will be different from that of theoriginal document.
Di it l E id T ti D t A th ti it
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Digital Evidence – Testing Document Authenticity
Tamper-Evident Seal Process
Document
Hash Function
Digest
Encrypt
Signature
Private Key
Tamper-Evident SealSignature Value(Digital Fingerprint )
Document
Hash Function
Decrypt
Expected
Digest
Public Key
Actual
Digest
If there are the same,
the tamper-evident seal is verified.
Electronic RecordCreating a seal Verifying a seal
The process of digitally signing a document with a valid digital certificate such thatif such a document is modified, it can be systematically detected.
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