How Municipal Documents are Executed

Last week I shared some thoughts on how Municipal Boards might take advantage of MGL c.110G (the Uniform Electronic Transactions Act) to execute documents electronically during the pandemic. I recently heard from a lawyer who represents a number of municipalities who, while acknowledging the legality of my suggestion, offered a different way for municipal boards to execute documents. Here’s how it would work: 

The municipal board, at a properly held meeting, would vote to authorize a specific town employee to execute documents such as Orders of Conditions or Special Permits on behalf of the board. A certified copy of that vote would then be recorded at the appropriate registry of deeds.

For new documents created after that, the names of the members of the board would be typed onto the form and then the designated employee would affix his or her “wet” signature to the document with the annotation that this signature is made "on behalf of the Board pursuant to the vote dated xxxx and recorded at the registry of deeds in book yyyyy, page zzz."

I think this is a wise and workable procedure. It’s akin to executing a Power of Attorney authorizing another to sign documents on your behalf. 

Executing a Document As Power of Attorney

A property owner who is unable to attend a closing may execute a Power of Attorney by which they grant the "attorney" the authority to execute the deed and other documents on their behalf. This is fairly common but there is still some confusion about the wording of documents executed in this manner. For this illustration, I'll refer to the property owner who has granted the power to someone else as the "principal" while the person to whom the power is granted will be called "the attorney."

In the Granting section of the deed, it would normally state, I, Principal, grant to buyer . . . When the document is to be executed by the Attorney rather than the Principal, this part of the document STILL SAYS "PRINCIPAL." The name of the Attorney is not inserted here in any way.

In the signature section of the deed, the Attorney signs the Principal's name, then immediately underneath the Principal's signature, the Attorney writes "By [name of attorney], his Attorney in Fact." If you want to do a really good job, include "Under a Power of Attorney recorded with the Middlesex North Registry of Deeds in Book 5555, Page 222."

Finally, in the acknowledgement clause, it should read as follows:

Then personally appeared Attorney and acknowledged the foregoing instrument to be the free act and deed of Principal.

Often an affidavit stating that the POA has not been revoked or suspended will be recorded, as well.

 See the Massachusetts Land Court's Registered Land Guideline 15 for more information on this.

A Few Observations on Local Real Estate

I recently posted the Lowell Real Estate Report and the Middlesex North Foreclosure Report on the Real Estate Reports page of the registry of deeds website. Based on these reports and on others I’ve prepared, I have a couple of observations about the local real estate market:

The number of sales from January through May 2018 is about the same as in Jan-May 2017, but prices seem to be up by 10% or more (based on our deeds excise tax collections and on median deed prices I've calculated). It's a good time to sell but not many people are selling, likely because they couldn't afford an upgrade to their current homes.

There are still a lot of foreclosures: Jan-May 2018 there were 106 versus 92 for the same period in 2017 (again, district-wide). The bulk of the mortgages being foreclosed originated during the real estate bubble (2003-2008). I don't know why after 10 years these mortgages are being foreclosed now. Have the people not been paying all along and the banks just failed to foreclose, or did the homeowner suddenly encounter some financial crisis like divorce, illness, job loss and lose the house to more recent causes? 

One thing is clear: almost all the bad mortgages were by national lenders. It's very rare to see a local bank doing a foreclosure. Their performance now and during the foreclosure crisis is a positive story that may not have gotten the attention it should have.

Also regarding foreclosures, the foreclosing lenders are increasingly willing to sell at auction to a third party whereas traditionally the lender was the purchaser at foreclosure. This suggests that auction bids are higher which makes sense given rising values. Quite a few of these third party foreclosure buyers are LLCs which are likely in the business of either (1) flipping properties or (2) owning a lot of rental properties. This has some long term implications if multifamily rental properties that were once owner-occupied increasingly come under the ownership of distant investors who might be less committed to the neighborhood and the community.

Electronic Acknowledgements

As more and more real estate transactions move from paper to digital, many wonder whether a notary public may electronically acknowledge a signature. I think the answer is YES, as I explain in this article which first appeared in the March 2018 edition of the Merrimack Valley Housing Report:

Until recently, the thought of a real estate closing that did not involve dozens of paper documents that contained cursive signatures made in ink seemed far-fetched. However, conversations with certain brokers, bankers and lawyers suggest that a tipping point for paperless real estate closings may soon be upon us.

Electronic signatures have been legal in Massachusetts since the adoption of the Uniform Electronic Transactions Act in 2004 (Massachusetts General Laws chapter 110G). This statute opened the door to electronic document recording in Massachusetts, a technology that now accounts for 55 percent of all documents recorded at the Middlesex North Registry of Deeds. However, almost all of those electronic recordings have consisted of scanned images of paper documents that were signed in ink with cursive signatures. Few have been true electronic signatures meaning some mark or symbol made directly on an electronic device by the person “signing” the document.

One reason for the limited use of electronic signatures on real estate documents is because of uncertainty over the legality of a notary electronically acknowledging a signature. The sticking point seems to be the requirement in Massachusetts General Laws chapter 222 (updated by Chapter 289 of the Acts of 2016) that a notary affix his notary stamp to the document when taking an acknowledgement. But a close reading of that statute does not necessarily require the stamp or the document to be tangible objects.

A notary who made the imprint of his notary stamp on a blank piece of paper and then photographed it, could then insert that digital image into an electronic document on which he was taking an acknowledgement. Presumably this would comply with the statutory requirement that a notary stamp be affixed to the document. In this case, both the stamp and the act of affixing it to a document would be electronic.

Electronic “workarounds” like this digital image of a notary stamp plus existing statutes and available technology make all-electronic transactions feasible today. Perhaps the hardest obstacle to overcome is the unfamiliarity people feel with a new way of doing things.

Whenever I raise the possibility of all-electronic transactions, the response typically is, “but that would increase the risk of fraud!” It’s true that all-electronic transactions are susceptible to fraud, but so is every other transaction, especially those on paper. Consider what happens when a document is recorded at the registry of deeds in the traditional manner. A person no one knows comes to the office with a piece of paper that purports to be legitimately signed and acknowledged, pays the recording fee in cash, waits for the document to be recorded, and then leaves with the original. Who prepared that document? Who signed it? Who acknowledged it? Who recorded it? We don’t know the answer to any of those questions. Neither are we bothered by the opportunity for fraud at every stage of that transaction.

The main reason for our nonchalance is that paper-based recording has been around for several centuries. Our familiarity with the process allows us to put the risk of fraud in the proper perspective. But all-electronic transactions are novel and unfamiliar to us, so it is natural for us to magnify the opportunity of fraud. Ironically, the technology needed for all-electronic transactions provides an audit trail that is unavailable with paper transaction, thereby making one who uses the technology to commit fraud easier to apprehend.

Another cause for confusion in adopting all-electronic transactions comes from complex procedures adopted in other states. Virginia, for instance, allows a notary public to take an acknowledgement by video. This permits a document to be acknowledged even though the person signing it and the notary acknowledging it are not in each other’s presence. While this has some real benefits – a service member deployed overseas, for instance, could easily execute a legal document – it is more than is required to perform an all-electronic transaction.

Nearly four hundred years ago, the colonial government of Massachusetts created the requirement that a document that conveys an interest in real estate must be acknowledged to be recorded. The purpose of this rule was to curtail fraud, either in the guise of a forged signature or of an actual signature that was later denied by its maker. That requirement and the reasons for it continue today. However, there is nothing to prevent the tools that are used to perform that task to change with advances in technology.

 

Community Preservation Act funding increase

Here's an article I wrote for this month's Merrimack Valley Housing Report about potential changes to the Community Preservation Act. 

In the fall of 2000, the Massachusetts State Legislature adopted the Community Preservation Act (CPA) to provide a mechanism and funding source for cities and towns to preserve open space, provide affordable housing, preserve historic structures, and provide recreational space. To participate in the CPA, residents of a community must choose to impose on themselves a property tax surcharge of up to 3 percent. This decision is made by voters by referendum at a municipal election. If the CPA is adopted, the community creates a Community Preservation Committee that recommends projects to the board of selectmen or city council which have the ultimate authority over the expenditure of CPA funds.

When it was first implemented, the CPA proposed a dollar for dollar state match to any funds raised locally for CPA projects. The state’s matching fund, called the Community Preservation Trust Fund, obtains its money from a surcharge imposed on documents recorded at the registry of deeds.

Almost all registry of deeds recording fees include a $20 per document Community Preservation Act surcharge. When you record a deed, for example, the total amount you pay is $125. Of that, $100 is the actual recording fee, $20 is the CPA surcharge, and $5 is a registry of deeds technology surcharge. The exceptions are municipal lien certificates, which carry a $10 per document surcharge; and declarations of homestead, which have no CPA surcharge.

As with all funds collected, the registry of deeds transfers these fees to the Department of Revenue on a daily basis. The DOR is the administrator of the CPA Trust Fund.

One of the problems with depending on registry of deeds recording fees to fund the CPA (or anything else) is that the revenue stream is tied to the real estate market. When real estate is booming, a substantial amount of revenue is collected, but when the market slows, so does the money coming in. For example, in 2003 when the Middlesex North Registry of Deeds recorded 146,956 documents, $2.8 million was collected for the Community Preservation Act. But in 2014, only 53,584 documents were recorded. That yielded just $983,000 is CPA funds.

This decline in funding for the CPA Trust has coincided with an increase in the number of communities choosing to participate in the CPA. This increased demand for matching funds has caused the match to decline from 100 percent in the early days of the CPA to matches of less than 30 percent of the amount raised by the municipality today.

To address this issue, the Massachusetts State Legislature is now considering an increase in the CPA surcharge on registry recordings from $20 to $50 per document. Whether this change (or any other) is made should be known by the end of this legislative session in June.

As for the local impact of the Community Preservation Act, eight of the ten communities in the Middlesex North Registry of Deeds district have voted to participate in CPA since its inception. Carlisle, Chelmsford, Dracut, Tyngsborough and Westford all adopted it in 2001; Dunstable and Tewksbury in 2006; and Billerica in 2016. Only Wilmington and Lowell have failed to take advantage of it. This is especially unfortunate for Lowell since the surcharge on documents recorded at the registry of deeds for properties in Lowell since 2000 has generated $5.8 million in CPA matching funds, all of which has gone to other communities.