E-Signatures in Real Estate Transactions: a Deep Dive
March 3, 2023
The real estate industry has seen a shift toward paperless systems, with electronic signature (e-signature) applications and software like DocuSign becoming increasingly popular. But are they really as convenient and secure as they seem? While some say yes, let’s explore the pros and cons of e-signatures as they pertain to real estate transactions.
E-signature applications and software are a quick and easy method of signing documents sans the need for physical paperwork. This can save time, money, and make the real estate process more efficient, especially when multiple parties are involved. With e-signatures, one can sign documents from anywhere, at any time, without having to meet with other parties in person. It is essentially the equivalent of having a virtual office at your fingertips!
As convenient and secure as that may sound, there are potential drawbacks to e-signatures in real estate contracts that many people overlook. Some real estate agents, for example, may not be well-versed in contracts. Most agents are not also licensed attorneys and cannot ethically make certain necessary adjustments to contracts without seeking legal counsel themselves or referring their clients to do so. In these cases, inadvertent mistakes can easily be made and happen all too frequently in e-signature real estate contracts. These mistakes can often lead to legal issues and conflicts down the line, especially if there are questions about the validity of the contract or the intentions of the parties involved.
E-signatures can pose unique challenges in litigation, particularly when a signer denies having signed the document. It may be difficult to establish a proper foundation for e-signatures, leaving room for disputes over their validity. Corporate entities can use e-signatures as a defense, arguing that the signer did not have the authority to bind the entity.
In a case between IO Moonwalkers and Bank of America Merchant Services, BAMS produced DocuSign records to prove the validity of a contract, but the court upheld the contract based on a theory of ratification rather than the mere digital trail. While e-signatures provide convenience, practitioners must weigh this against the potential legal issues that could arise, especially in large transactions that may end in litigation.
Security is another major concern. Yes, e-signature applications take steps to ensure the safety of your documents and personal information, but there is always a risk of data breach, or hacking. Additionally, e-signatures can be challenged much more easily in court, particularly if there is a question of the signer's identity or intent.
It is important to note that not all documents are eligible for electronic signatures. Some legal documents may require a “wet” (physical) signature, and specific laws govern the use of electronic signatures in real estate transactions. While the laws governing e-signatures in legal documents are not always clear, practitioners should take certain steps to ensure the validity of electronically-signed documents.
Before filing any document with an e-signature, it is important to review all relevant court rules. In the event of a dispute, practitioners should be prepared to confirm their own e-signatures through an affidavit or other means. Including language in contracts or deal documents that specifically address the validity of electronic signatures can also help bolster their enforceability.
Practitioners should also be aware of potential arguments against the enforceability of e-signatures and consider requiring wet signatures in certain situations to mitigate these concerns. By taking these precautions, practitioners can ensure that electronically-signed documents are enforceable and legally sound. This is another situation where seeking legal counsel becomes essential. A real estate attorney can assist you in navigating these laws in your state and ensure that you are signing documents appropriately.
Ultimately, e-signature applications and software can be beneficial to the real estate industry through convenience, but users should be wary of their potential risks and limitations, particularly in terms of error, legality, and security. Prior to signing any real estate contracts using these applications and software, it is crucial to consult with a legal professional to ensure that you are following the proper procedures and protecting your interests (and most valuable asset, your real estate). Do not let the convenience of signing your documents electronically lead to unnecessary risks - stay informed, stay protected, and contact our attorneys today at (855) 219-3333 for a FREE 30-minute consultation at no obligation!