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Digital Notes Are Enforceable

MISMO releases white paper on electronic notes

November 24, 2008

By MortgageDaily.com staff

A new white paper outlines the legal foundation for enforcing electronic mortgage notes.

The report was jointly prepared by the Mortgage Industry Standards Maintenance Organization, the Electronic Signature and Records Association and the American Land Title Association.

"This paper will explain that under the federal Electronic Signatures in Global and National Commerce Act and the Uniform Electronic Transaction Act, eNotes can be originated, validated and enforced on a nationwide basis," the report said.

The two acts, also known as ESIGN and UETA, enable an electronic note to be treated as a negotiable promissory note. Some of the concepts were pulled directly from the Uniform Commercial Code. While UCC was not designed for electronic records, the two acts "were enacted to create the legal framework or a parallel structure for the electronic equivalent of a paper promissory note, known as a 'transferable record.'"

The analysis said e-Notes are supported by all states except Georgia, Illinois, New York and Washington -- though all four of those states have adopted an electronic signature law aside from the two outlined above.

Electronic notes are enforceable under ESIGN, and "lenders that intend to originate real estate-secured eNotes will always be able to rely on ESIGN to provide the basis for validating and legally enforcing such transactions."

The report -- entitled Case Closed: eNotes Are Legal -- concluded that a digital note created, stored and maintained according to ESIGN and UETA is a valid, enforceable and negotiable debt obligation.

"To the extent that a state has not adopted UETA or a state law alternative that is consistent with ESIGN, Title II of ESIGN may be relied upon to validate the creation, storage and transfer of eNotes originated under any state law," the authors wrote.

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