The Future’s So Bright, I Gotta Wear Shades Real Estate Tech: eNotes and eVaults Create eXCiting New Landscape for Real Estate Closings

by Heather James

With all fondness for our industry, we admit real estate is notorious for moving slowly. While everyone else was going digital, we were happily chugging along in the analog world. Now that all those early adopters are up in the cloud, most real estate closing platforms are still server-based and limited in their ability to transition and grow. Some people in the industry are content with the status quo, but at Cook & James, we enthusiastically embrace new technology because we know this bright future can benefit us and our clients. Today I continue the mini-series about tech: last time we discussed eClosings, here, we’ll talk about eNotes.

Let’s get our eye protection ready, the future’s so bright, we’re gonna need shades!

What is an eNote?

An eNote is the electronic version of a promissory note, which traditionally has been a paper document. The single most important piece of collateral in the housing finance and mortgage lending process, promissory notes are the legal documents that enforce a borrower’s promise to pay back an agreed upon sum of money to a lender within a specific period of time.

Because it’s a critical process, transitioning this important document from paper to an electronic format can be full of pitfalls and complications, especially when you consider mortgages are bought and sold quite frequently.

Maintain Integrity Through Ownership Transfers

Whoever holds a promissory note is entitled to enforce the debt obligation against the signer. Think of all the times you can refinance a loan, then multiply that exponentially for other transactions and it’s clear that mortgages get sold all the time. It then follows that the note must be transferred to the new owner, therefore, maintaining the integrity of the document in its new electronic format – during an eClosing -- is of the utmost importance.

The eNote must be created, signed, and managed in a specific way to ensure it has complete legal enforceability, just like old times when paper was registered in a courthouse. 

To tackle this issue, a system was created to transfer, maintain, and control these eNotes and it’s now required when executing an electronic mortgage to be sold into the secondary market.  The solution includes three critical components: the approved format of the document, where it must be registered, and how it must be stored. Fannie Mae and Freddie Mac both adopted the system to ensure the validity and re-salability of eNotes. This made eClosings with eNotes far more commonplace.

Details, Details, Details

During an eClosing signing, the note must be executed as a specific type of file to be valid. The required format is MISMO XML SMARTDoc eNote. Basically, MISMO applies signatures to the eNote in real-time and makes them tamper-proof.  Once signed, the MISMO eNote is then transferred, stored and maintained in a data warehouse called, you guessed it, an eVault. Reflecting its characteristics of security, the eVault also facilitates an audit trail so all document data maintains its accuracy and integrity as it cascades through the system. The eVault also makes future mortgage lending and housing finance transactions more accessible.

The eNote is registered with the Mortgage Electronic Registration System (MERS), which is a company that was created by the mortgage banking industry to maintain a database for tracking mortgages electronically.  With an eNote the controller and location are assigned, and ultimately transferred into the secondary market or end investor. As the eNote moves through the system, the MERS registry is electronically updated with all transfers of control and location.  MERS eliminates the necessity of a lender recording an assignment in the county of record every time a loan is sold.   In totality, the combination of these services creates a formal audit trail – a traceable path -- which can be used to validate and prove authoritative copy and track transfers between parties at all times.

Ok great. Why is this important to me?

First off, it’s important because lenders love the ease and turnkey nature of eNotes. And second, if the lender is happy, that usually trickles down to and makes contented agents, brokers, buyers and sellers.

For a lender, eClosings with eNotes dramatically speed up the process of closing and selling loans. Lenders can get warehouse lines repaid in as little as two days. From a lender’s perspective, using eClosings and eNotes results in expedited sale to the secondary market and faster capital replenishment. For agents, buyers and sellers, a speedier lending process means fewer glitches and outstanding needs from the lender, getting the entire real estate transaction accomplished on schedule, more quickly, and with less drama.

Pardon my word-creativity, but I daresay it’s certainly an eXCiting time to be on the cutting eDge of eClosings, eNotes and eVaults…hang on because the future’s never looked so bright!

Next up in this mini-series on tech we’ll discuss blogs about eNotaries and single source validation. Feel free to email any comments, suggestions, questions or topics you’d like us to explore. We love to hear from our pals in the industry!