Will Paperless Transactions Become a Reality?

Digital Signature Update... While the passing of the Electronic Signatures in Global and National Commerce Act on June 30, 2000, was heralded as a watershed moment, online cradle-to-grave real estate transactions remain a distant speck on the horizon. Solving the data integrity and verification technology is no longer the constraint. In time, the psychological barriers to digital signatures, i.e., the loss of weight and ceremony at the closing table, will also fade as the generation gap dissipates. Rather, acceptance of truly paperless transactions will be delayed due to the time needed to build policies and legal precedents to address the liability questions directly.

Time sensitive transactions -- building permit applications, licenses and inspections -- and simple low dollar contracts between two parties -- equipment leases, service contracts and lease amendments -- will be the first barriers broken. In addition, intra-company transactions, such as expense reports and purchasing authorizations will certainly precede most external transactions. Insurance contracts will also be close behind due to the competitive nature of the industry and greater likelihood for both parties to agree to eliminate the paper. The federal government's decision to make it mandatory that all agencies, by October 2003, make their public documents available electronically and enable the use of digital signatures will also facilitate regulatory approvals related to real estate.

However, the Big Enchilada -- the paperless financing and settlement of large commercial real property deals -- is far from imminent. Why? Edward West, a real estate attorney at Covington & Burling's office in Washington, DC office, offered this commentary. "The legislation's absence of specific requirements or presumption of reliability implies that relying exclusively on electronic signatures or documents will not be without risk, at least until there is a greater body of case law addressing their enforceability. Although the benefits of electronic transactions are many, they also pose significant risks that should be considered whenever a company is contemplating a transition to a paperless process. First, online records may be subject to electronic theft and/or improper use, which could raise significant security concerns. Second, electronic records have proven a fertile ground for discovery in litigation. Accordingly, a transition to online transactions should be accompanied by a review of both security and record retention practices." For more details on the E-Signature Act, contact West directly at ewest@cov.com.

--Eileen / ecirco@pikenet.com