E-signatures and two sides of the debate
May 23rd, 2014 | By FCT
May 2nd marked the one-year anniversary of the Ontario 2013 budget proposal to permit electronic signatures on an agreement of purchase and sale (APS) for real property. Currently when you make an offer to buy a home with an APS it is usually subject to negotiations between parties. The back and forth changes to the offer between the buyers and sellers normally represented by their realtors, either happens through email or fax. The final agreement must be signed in person as the only contract in Ontario that cannot be signed electronically under the Electronic Commerce Act is the APS for real property.
In the past year, the Ministry of Attorney General has conducted a number of consultations with interested parties: realtors, lawyers, insurers and their professional regulators about the transition to e-signatures. The government will enable the use of e-signatures once it determines if any additional regulations are required to govern the use of e-signatures. Behind the scenes two distinct camps have emerged: the industry and the regulators.
The industry side is of the view that there is no need for detailed regulatory requirements to prescribe acceptable technologies, nor standards as they would stifle competition and technical advancements in the security field. Industry wants to be industrious.
The regulators well they want to regulate with enforceable standards. Their main concern is fraud, which is also the concern of industry who bear the cost and reputational risk of fraud.
Let’s look at the current regime against fraud and understand if it translated to the digital world. As part of the industry camp we submit that consumer protection against real estate fraud already extends from a traditional ink and paper signature to an electronic signature. FINTRAC’s “Know your Client” requirements for lawyers, lenders and other real estate professionals, as well as their existing professional standards provide comparable safeguards in a digital environment.
As well, over 90% of all residential real estate transactions are currently title insured in Ontario. Title insurers are at the forefront of real estate fraud. A lenders’ title insurance policy will compensate the lender in the event of mortgage fraud and likewise, a homeowner’s policy will provide compensation from title theft. The Law Society also collects an annual real estate fraud levy from its members practicing real estate law in event of a fraudulent transfer of title committed by another licensed member. Finally, the Land Title Office operates the Land Title Assurance Fund in the event of a registration of a fraudulent mortgage or transfer of title where the lender /homeowner has no recourse to title insurance.
As a member of the industry-side we see a fulsome regime providing compensation for homeowners and lenders should they be victims of mortgage or title theft. There is no evidence that the advent of an e-signature will diminish the coverage from any of these insurers or funds which are operating in a digital environment under the Teranet regime.
And let’s also think about the future, my seven year old is not learning cursive writing at school. What will a signature look like in the future? I submit that it will not be a made in Canada solution. It will likely be dictated by industry standards as a result of trade agreements with a much larger trading partner like the EU, NAFTA or Asia-Pacific region. So investing in local regimes will be of limited utility in the long run.
An outstanding concern is the issue of compatibility between different sets of users. The APS may be shared with lenders, insurers, mortgage brokers and lawyers as it journeys from offer to closure. Each of these user groups may be subject to their own professional or industry standards. Generally technology compatibility is a significant driver for companies in the digital age so I have no doubt of its top of mind.
So while we are in the midst of a campaign for the hearts and minds of Ontarians, I hope that the next administration will not lose sight of this important change.