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California’s Uniform Electronic Transactions Act (“UETA”) (Civil Code Sections 1633.1 et seq.) and the federal Electronic Signatures in Global and National Commerce Act (“E-Sign”) (15 USC Sections 7001 et seq.) authorize the use of electronic signatures and records in real estate transactions.  Until now, the primary stumbling block to electronic transactions has been security and authentication issues.  Those issues have found a solution in part through companies offering security and authentication features for electronic signatures and records delivered as part of real estate transactions.  WINForms® and RELAY^TM now contain an electronic signature feature, allowing C.A.R. members the opportunity to incorporate electronic signatures in their real estate transactions.  RELAY™ is the REALTOR®-owned Internet tool that enables agents to connect with clients, through a custom transaction website.  Go to http://www.rebt.com/index.asp for more information regarding RELAY^TM

This legal article discusses electronic signatures and records in California real estate transactions generally.  It does not cover the specifics of any particular electronic format.

Q 1.    What is the purpose of E-Sign and UETA?

A  E-Sign and UETA were enacted to create uniformity in electronic transactions and to ensure equivalency between electronic signatures, contracts and records and their paper counterparts.  To achieve this purpose, both E-Sign and UETA state that no signature, contract, or record relating to a transaction can be denied legal validity or enforceability solely because it is an electronic format, or solely because an electronic signature or electronic record was used in its formation.

Q 2.   Which law, E-Sign or UETA, applies to my California real estate transactions?

A  As a general rule, E-Sign preempts any inconsistent state law.  It is unclear whether UETA has been preempted by E-Sign.  This uncertainty stems from the fact that states can modify, limit, or supersede E-Sign provisions if (1) the state adopted the model UETA law that was approved by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) or (2) the state specifies alternative procedures or requirements for the use or acceptance of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, if such alternative procedures or requirements: (i) are consistent with E-Sign and (ii) do not require or accord greater legal status or effect to any specific form of technology or technical specification.

California adopted an early version of the model UETA, and not the version approved by NCCUSL.  Additionally, California made substantial modifications to some of UETA’s provisions.  Accordingly, questions remain as to whether any of those modifications are inconsistent with E-Sign, and whether they are technologically neutral.

UETA appears to be technologically neutral and most of the provisions appear consistent with the model UETA law.  UETA does, however, differ from E-Sign in some significant aspects, especially with regard to transactions exempted from UETA’s provisions, which are not specifically exempted from E-Sign.  Whether any specific provision of California’s UETA is preempted will have to wait for further legal determination.

Q 3.   Which transactions are excluded from E-Sign and UETA?

A E-Sign and UETA have similar but not identical provisions for excluding certain transactions from their application.  E-Sign excludes:

• Wills, codicils, or testamentary trusts;
• Adoptions, divorce or other family law matters;
• Uniform Commercial Code transactions, expect sections 1-107 (waivers), 1-206 (statute of frauds for certain kinds of personal property) and Articles 2 (personal property sales) and 2A (personal property leasing);
• Court orders or notices, or other official court documents required to be executed in connection with court proceedings;
• Any notice of
• cancellation or termination of utility services,
• default, acceleration, repossession, Foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of the individual;
• the cancellation or termination of health insurance or benefits or life insurance benefits (excluding annuities);
• the recall of a product, or material failure of a product, that risks endangering health or safety; or
• Any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials.

UETA contains similarly broad exemptions, but UETA also contains various additional exceptions.  In addition to mirroring many of the E-Sign exemptions, the ones that are of particular interest to real estate professionals are (listed by type of transaction):

Purchase and Sales Transactions:

• Notices under the Davis Sterling Common Interest Development Act   (Civil Code sections 1350 to 1376);
• Seller financing disclosures (Civil Code section 2963);
• Home Equity sales contracts (Civil Code section 1695 et seq.);
• Provision of conditional sales contact/Note and security agreement to mobilehome/manufactured home owner (Health & Safety Code section 18035.5);
• Notices under Mobilehome Residency Law (Civil Code section 798.14);
• Condominium, community apartment project and stock cooperative Defect disclosures (Civil Code section 1134); and
• Subdivision blanket Encumbrance disclosures (Civil Code section 1133).

Landlord and Tenant Transactions:

• The handling of security deposits, inspection notices and rental application screening fees (Civil Code sections 1950.5 and 1950.6);
• Abandoned personal property (Civil Code section 1983);
• Three-day and eviction notices (Code of Civil Procedure section 1162); and
• Innkeeper notice of sale of guest’s personal property (Civil Code section 1861.24).

Mortgage and Lending Transactions:

• Mortgage foreclosure consultants (Civil Code section 2957 et seq.);
• Notices regarding balloon payments (Civil Code sections 2963 and 2924i) and foreclosure notices (Civil Code section 2924j);
• Notice of transfer of mortgage servicing (Civil Code section 2945);
• Late payment notices (Civil Code section 2954.5);
• Notice by loan collection agents (Civil Code Section 2924.3);
• Notice of default and sale (Civil Code section 2924c and 2924f);
• Copies of notices of default and sale (Civil Code section 2924b); and
• Seniors shared appreciation loan disclosures (Civil Code sections 1917.712 and .713).

Insurance Transactions:

• Cancellation or non-renewal of homeowners insurance (Insurance Code sections 677 and 678);
• Notices related to offer of earthquake insurance (Insurance Code Sections 11083, 11086 and 11087); and
• Insurance disclosure statement (Insurance Code section 10102).

NOTE:  Although the transactions specified in the Davis-Sterling Common Interest Development Act are carved out from UETA, Civil Code section 1350.7 provides that common interest disclosures and documents required to be delivered under that act can be delivered by e-mail, facsimile, or other electronic means if the recipient has agreed to that method of delivery.

Q 4.   Are there any C.A.R. standard forms in the WINForms® library that should not be signed with an electronic signature?

A  In light of the above exceptions and the unresolved preemption issue, it is recommended that the following forms in WINForms® be signed with a “wet” signature rather than an electronic signature:

• 48-Hour Notice of Inspection Prior to Termination of Tenancy (FEHN);
• Application to Rent/Screening Fee (LRA)
• Move In/Move Out Inspection (MIMO)
• Notice of Change in Terms of Tenancy (CTT)
• Notice of Obligation to Pay Rental or Lease Payments in Cash (NPC)
• Notice of Termination of Tenancy (NTT)
• Notice to Perform Covenant (Cure) or Quit (PCQ)
• Pre-Move Out Inspection Statement (PMOI)
• Three-Day Notice to Pay Rent or Quit (PRQ)
• Seller Financing Addendum and Disclosure (SFA)

Q 5.   Can a party be required to use an electronic signature or record, or is the party’s consent required?

A  Both E-Sign and UETA state that they do not require any person to use an electronic signature or record.  Consent of the parties is required and may be withdrawn at any time.  Under UETA, the parties must have agreed to conduct the transaction by electronic means in order for UETA to apply to the transaction.  This agreement cannot be inferred solely from the fact that the parties have used electronic means to pay an account or register a purchase or warranty. But, notwithstanding that provision, UETA states that, whether the parties have agreed to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties’ conduct. 

Furthermore, UETA states that an agreement to conduct a transaction by electronic means may not be contained in a standard form contract that is not an electronic record, and the contract may not be conditioned upon an agreement to conduct transactions by electronic means.  If the agreement to conduct an electronic transaction is not in electronic format, it must be in the form of a separate and optional agreement, the primary purpose of which is to authorize the transaction by electronic means. 

Q 6.  How do E-Sign and UETA address documents in real estate transactions that are required to be delivered in writing, such as disclosures?

A   E-Sign provides that if a statute, regulation, or other rule of law requires that information relating to a transaction be provided to a consumer in writing, the use of an electronic record satisfies that requirement, provided that the “consumer” has consented to the use of an electronic record in the transaction.  Parties to a real estate transaction generally fall within the definition of “consumer” under E-Sign.

UETA has a substantially similar provision stating that if the parties have agreed to conduct an electronic transaction and a law requires a person to provide, send, or deliver information in writing to the other person, that law is satisfied if the information is provided, sent, or delivered in an electronic record capable of retention by the recipient at the time of receipt. 

E-Sign has very specific requirements for obtaining consent to receive disclosures that are required by law to be delivered in writing.  The digital signature feature in WINForms® contains a consent form that complies with E-Sign’s requirements.  The form also obtains the parties’ consent to conduct a transaction by electronic means, and it provides the parties with important information about conducting electronic transactions. 

Under E-Sign, documents required by law to be delivered in writing may be delivered electronically if:

1. The consumer has affirmatively consented to using electronic records and has not withdrawn such consent; and

2. The consumer, prior to consenting, is provided with a clear and conspicuous statement that

a.  Informs the consumer of (i) any right or option to have a record provided or made available in paper form, and (ii) the consumer’s right to withdraw consent to electronic records, and any conditions, consequences, or fees in the event of such withdrawal;

b. Informs the consumer of whether consent applies to (i) only the records in the particular transaction, or (ii) to identified categories of records that may be provided during the course of the parties’ continuing relationship;

c.  Describes the procedures for the consumer to withdraw consent and to update information to contact the consumer electronically;

d. Informs the consumer how, after consent, the consumer may, upon  request, receive a paper copy of an electronic record, and whether any fee will be charged for the copy; and

3. The consumer, prior to consenting, is provided with a statement of the hardware and software requirements to access and retain electronic records; and

4. The consumer consents electronically, or confirms electronically, his or her consent, in a manner that reasonably demonstrates that the consumer can access information in the electronic format that will be used to provide the information in the transaction; and

5. After consent, if there is a change in the hardware or software requirements needed to access the electronic records that creates a material risk that the consumer will not be able to access or retain a subsequent electronic record, the person providing the electronic record must provide the consumer with a statement of (i) the revised hardware and software requirements, and (ii) the right to withdraw consent without the imposition of any fees and without the imposition of any condition or consequence not previously disclosed; and

6. The consumer must consent to any such changes electronically, or confirms electronically, his or her consent, in a manner that reasonably demonstrates that the consumer can access information with the new hardware or software requirements.

Q 7.   What are “transactions” for the purpose of E-Sign and UETA?

A  Both laws define “transactions” with very broad strokes.  UETA provides that a transaction is an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs.

E-Sign provides that a transaction is an action or set of actions relating to the conduct of business, consumer, or commercial affairs between two or more persons, including  the sale, lease, exchange, licensing, or other disposition of personal property or services, or any combination of the above; and the sale, lease, exchange, or other disposition of any interest in real property, or any combination thereof.

Both E-Sign and UETA are applicable to real estate transactions.

Q 8.   What is an “electronic signature”?

A  The definitions of E-Sign and UETA are nearly identical providing that an “electronic signature” is an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.  UETA substitutes “electronic record” for the terms “contract or other record.”  The now familiar process of “clicking through” at the end of an electronic agreement can satisfy the definition of an electronic signature under both laws.

Q 9.   What is an “electronic record”?

A  Under both E-Sign and UETA, an “electronic record” is a contract or other record (UETA simply says “record”) created, generated, sent, communicated, received, or stored by electronic means.

Q 10.   Do E-Sign and UETA records satisfy record retention rules?

A    Yes.  E-Sign provides that a legal requirement to retain a contract or other record relating to a transaction is met by retaining an electronic record that (i) accurately reflects the information in the contract or other record, and (ii) remains accessible to all persons who are legally entitled to access, in a form that is capable of being accurately reproduced for later reference, whether by transmission, printing, or otherwise.

Again, UETA has a substantially similar provision.

Q 11.   Certain statutory forms, such as the TDS, NHD and agency disclosure, provide for the Acknowledgement of receipt by the parties.  How is that handled in an electronic format?

A  E-Sign states that if a law enacted prior to E-Sign requires that a receipt of a record be verified or acknowledged, the record may be provided electronically only if the method used provides verification or acknowledgement of receipt.  As a practical matter, this would seem simple enough to accomplish.  The TDS, NHD and agency disclosure provide for buyer and/or seller acknowledgement in the forms themselves.  The parties’ acknowledgement would come in the form of an electronic signature as defined above.

Q 12.   How do the parties agree to liquidated damages or arbitration?

A  E-Sign does not address these matters.  UETA begins by providing that it does not apply to any law that requires specifically identified text or disclosures in a record or a portion of a record to be separately signed or initialed.  However, UETA then goes on to carve out from this exception liquidated damages or arbitration provisions in the sale of real property.  In other words, you can use an electronic signature to agree to liquidated damages and arbitration in real estate purchase agreements.  Again, the parties’ consent to liquidated damages or arbitration is indicated by their electronic signature in the electronic record.

Q 13.   How do E-Sign and UETA treat contract provisions that must be in a certain type size or format?

A   UETA is much more specific than E-Sign in this regard.  E-Sign states that its general rules of validity concerning electronic signatures and records do not affect any legal requirements other than a requirement that contracts or other records be written, signed, or in nonelectronic form.  E-Sign also does not affect any legal requirements relating to the proximity of any warning, notice, disclosure or other record required to be posted, displayed or publicly affixed.

UETA provides that if a law requires that a record be posted or displayed in a certain manner, or be sent, communicated, or transmitted by a specified method, or contain information formatted in a particular manner, all of the following apply:

• the record shall be posted or displayed in the manner required;
• the record shall contain the information formatted in the manner specified in the other law; and
• the record shall be sent, communicated or transmitted by the method specified in the other law.

If the sender inhibits the recipient’s ability to store or print the electronic record, the record is not enforceable against the recipient.  These requirements cannot be varied by agreement except under limited circumstances.

Q 14.   How do I know when documents have been sent and received?

A  E-Sign and UETA do not effect the parties’ present ability to contractually define when records are deemed sent and received.  Absent such an agreement, the provisions in E-Sign and UETA may apply.  E-Sign does not provide definitions or make other provisions for when documents are deemed sent and received.  UETA, however, does.  Pursuant to UETA, unless the parties agree otherwise, an electronic record is sent when it is addressed properly and either (i) enters an information processing system outside of the control of the sender or a person that sent the electronic record on behalf of the sender, or (ii) enters a region of an information processing system that is under the control of the recipient.

An electronic record is deemed received under UETA when it enters an information processing system that the recipient has designated or uses for the purpose of receiving electronic records or information of the type sent, in a form capable of being processed by that system, and from which the recipient is able to retrieve the electronic record. Unless otherwise expressly provided in the electronic record or agreed to by the parties, the electronic record is deemed to be sent from the sender’s place of business and received at the recipient’s place of business.  If the recipient is an individual acting on his or her own behalf, it will be deemed received at the recipient’s residence.  If the sender or recipient has more than one place of business, the place of business having the closest relationship to the underlying transaction will apply.  If the sender or the recipient does not have a place of business, the sender or the recipient’s residence will apply.

Under UETA, the parties may agree to a different definition of when records are deemed sent and received, if such agreement is reasonable under the circumstances.  The parties should review their agreement to see what provisions apply.

Q 15.  Are there specific provisions for changes or errors in electronic records under E-Sign and UETA?

A  E-Sign is again silent on such provisions.  UETA provides that if the parties have agreed to specific security provisions to detect changes or errors and one party has conformed to the security provision and the other has not, and the non-conforming party would have detected the change or error if they had conformed, then the conforming party may avoid the effect of the change or error.

If the transaction involves an individual, the individual may avoid the effect of an error made by that individual in dealing with the electronic Agent (the computer program used to initiate an action or respond to electronic records or performances without review by an individual) of the other person, if the electronic agent did not provide and opportunity to correct the error at the time the individual learns of the error; and

(i) the individual promptly notifies the other person of the error and the individual did not intend to be bound by the action;

(ii) the individual takes reasonable steps to return to the other person any consideration, if any, received as a result of the error; and

(iii) the individual has not used or received any benefit or value from the consideration, if any, received from the other person.

Conclusion

E-Sign and UETA provide guidance for the use an electronic signatures and records in real estate transactions.  Although some questions remain regarding E-sign’s preemption of California’s UETA and the specific real estate transactions that are exempt, both laws pave the way for electronic transactions to be conducted in California.