General Practice, Solo & Small Firm
DivisionMagazine
VOLUME 19, NUMBER 2 MARCH 2002
REAL ESTATE LAW
E-commerce in Real Estate Transactions
By William P. Gardella
This article reviews the key provisions of the Electronic
Signatures in Global and National Commerce Act (Act) and the
Uniform Electronic Transactions Act (UETA). Federal preemption of
state law on electronic transactions is intended to be a
temporary measure. State law is to be preempted only until states
adopt uniform standards that are consistent with those set forth
in the Act or in UETA. The article concludes with a discussion of
how the integrity and confidentiality of electronic real estate
transactions can be protected.
Electronic records and signatures. The Act provides that a
contract, signature, or other record relating to a transaction
that affects interstate or foreign commerce cannot be denied
legal effect solely because it is in electronic form. The term
"transaction" includes the sale, lease, exchange, or other
disposition of any interest in real property. The parties to a
contract are not required to enter into or sign a contract in an
electronic form, but the Act gives them the option to do
so.
An electronic copy of a contract is adequate for purposes of the
Act if the electronic version accurately reflects the information
in the contract and can be accurately reproduced at a later date
by the parties that are entitled to access the contract. The Act
is technology neutral. It defines "electronic" broadly as
"relating to technology having electrical, digital, magnetic,
wireless, optical, electromagnetic, or similar
capabilities."
The term "electronic signature" is defined as "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." That term could
include the simple act of typing a name at the end of an e-mail
message or the more sophisticated act of attaching a digital
signature.
Exclusions. The Act does not apply to contracts or records
governed by laws pertaining to the execution of wills, codicils,
and testamentary trusts. The Act also does not apply to records
or contracts subject to laws pertaining to adoption, divorce, or
other family law matters or to court orders, notices, and
pleadings.
Provisions in the Uniform Commercial Code governing waiver or
renunciation of a claim or right after breach, statute of frauds,
and Articles 2 and Article 2A are covered by the Act. All other
provisions are excluded.
The Act specifies the types of notices that may not be sent
electronically, including notices of the cancellation or
termination of utility services. Default, acceleration,
repossession, foreclosure, and eviction notices related to a
primary residence of an individual also are excluded from the
Act. Documents that are required to accompany the transportation
or handling of hazardous materials may not be used in an
electronic form.
Consumer contracts. Consumer contracts fall within the coverage
of the Act, but detailed disclosure procedures must be followed
for these transactions. Before obtaining a consumer's agreement
in an electronic format, the consumer must be provided with a
disclosure statement. This statement must inform the consumer of
certain rights, including the option to proceed with the
transaction in a paper or nonelectronic form and the procedures
to be followed in the event the consumer elects to withdraw the
consent to use an electronic format. The consumer must also be
informed about the hardware and software required to complete the
electronic transaction and how to obtain a paper copy of it. A
consumer's withdrawal of consent does not affect the validity of
electronic contracts or records provided before the
withdrawal.
Uniform Electronic Trans-actions Act. The intent of UETA is
consistent with the intent of the Act: to remove restrictions on
entering into contracts and signing documents in an electronic
format and to ensure that electronic signatures, records, and
contracts will be treated in the same manner as those in written
form. UETA removes the requirement of the pen and ink medium for
the effectiveness of a contract, record, or signature, but it
does not otherwise affect substantive law. UETA simply permits a
signature to be furnished in an electronic format. It provides
that to the extent the law requires that a signature be
notarized, acknowledged, or verified, the requirement is
satisfied if the electronic signature of the person is attached
to or "logically associated with" the signature.
Effect on real estate transactions. The Act is intended to cover
real estate transactions. Although UETA is intended to apply to
real estate transactions, it gives states the option to exclude
certain types of transactions from its coverage. Similarly, the
Act permits a state to except matters from the coverage of UETA
if those exceptions are not inconsistent with the Act. A state
may, therefore, exclude real estate transactions from its version
of UETA or refuse to permit electronic filings of real estate
transactions. As a result, the parties may be able to enter into
a contract electronically yet be required to use the traditional
paper-and-pen approach for recording purposes. If the transaction
involves interstate or foreign commerce, however, the parties may
elect to proceed electronically because the Act preempts
inconsistent state law.
The definitions of an electronic signature and document are so
broad they apparently include such things as voice mail and
e-mail messages. It may come as a surprise to learn that the
Statute of Frauds may not save a party from an ill-worded voice
mail or e-mail message.
Public key cryptography. Public key cryptography is an electronic
method of allowing parties to communicate electronically over an
open network, such as the Internet, with a reasonable expectation
of privacy. Public key cryptography involves the use of two
electronic "keys," one private and one public. A message
encrypted with the private key can be decrypted only with a
corresponding public key, and vice versa. Therefore, only the
users of a corresponding pair of private and public keys can
scramble and unscramble messages.
Public key cryptography involves the role of a third party,
called a Certificate Authority (CA), to provide assurances to the
parties regarding the identity of those using the keys. A party
that applies to a CA for a digital certificate should consider
the scope of the transactions that may be covered by the
certificate and the number and identity of the parties that may
rely on the certificate. Similarly, before a party relies on a
digital certificate, the party should consider its scope and the
potential number of other parties that may also rely on it,
because that will have an impact on the potential exposure of the
CA if defects later arise.
The subscriber, the CA, and the relying party should reach an
agreement that outlines the rights and obligations of the
parties. The agreement may set forth boundaries for the use of
the digital certificate, who may rely on it, when, limits of
liability, requirements for the CA to maintain a stated financial
level, and the CA's practice statement. To evaluate the CA's
financial responsibility, it would be useful to require the CA to
disclose the number of certificates that it has issued and its
aggregate financial liability under those certificates.
The CA's practice statement may outline such matters as its
technical and due diligence standards and an agreement to notify
the subscriber and the relying parties of the revocation of the
certificate. The CA should be required to revoke the certificate
if the CA has reason to believe that information provided to it
is inaccurate or if access to the subscriber's private key has
been compromised in some way. The CA should also contractually
agree to be responsible for maintaining the integrity,
confidentiality, and availability of the data. These issues
should be considered and addressed in an agreement having
contractual privity among the affected parties.
William P. Gardella is associate general counsel in the legal department of Metropolitan Life Insurance Company in New York City.
This article is an abridged and edited version of one that
originally appeared on page 44 of Probate and Property,
July/August 2001 (15:4).
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