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RON & Fraud: There’s More to the Story

This piece originally appeared in the July 2023 edition of MortgagePoint magazine, online now.

Remote online notarization (RON) has been a game-changer in the real estate industry, bringing convenience, efficiency, and security to the closing process. Despite a few incidents of attempted fraud highlighted in the media, RON continues to gain popularity and recognition for its many benefits and added security protections.

While it is important to shed light on attempted fraud, it is equally important to keep things in perspective. Isolated incidents of fraud represent only a tiny fraction of the many successful real estate transactions conducted using RON each year.

RON closings provide many additional identity verification safeguards than conventional in-person notary transactions, especially when using the right platform and when best practices are followed.

Putting RON Fraud Into Context
Instances of fraud related to Remote Online Notarization technology may typically involve criminals utilizing a public database to identify unoccupied or unencumbered properties, obtaining the owner’s identity from public records, and impersonating the owner while working with an unsuspecting real estate agent.

In such scenarios, the fraudulent seller often fabricates an urgent need to sell the property and may accept below-market value offers, particularly if paid in cash. The criminal often insists on a remote closing and may have arranged their own remote notary outside of a conventional platform.

However, the issue with focusing on these isolated incidents is that they are often presented without the necessary context. While addressing these incidents is important, it’s also crucial to understand that they don’t necessarily reflect a system’s overall safety and success.

The same holds true for real estate transactions.

The real estate market is known for its high transaction volumes, with millions of deals conducted each year. While a small fraction of these transactions may involve fraudulent activity, we have advanced tools at our disposal to stay ahead of bad actors.

Enhanced Safety Measures in Remote Closings
RON provides a plethora of identity verification safeguards that go beyond what is typically available in conventional in-person notary transactions. Although concerns have been raised about their safety, we can be assured that it is, in fact, the safest option when closing, especially when (and if, as it keeps being introduced) federal legislation passes that establishes clear rules and regulations.

However, since we are currently working in a patchwork landscape, the laws vary by state, which can create confusion and uncertainty. Despite this, RON should still be regarded as the safest option available due to the advanced security verification tools and safeguards that closing platforms incorporate.

These measures far exceed the security provided by a notary checking someone’s ID during an in-person notarization.

During an in-person signing, the notary only verifies the seller’s identity by checking their ID and making a notation. However, with RON, the notary verifies the seller’s ID by asking them to present it to the camera for credential verification and answer a dynamic “Knowledge-Based Assessment” quiz of five questions based on the identity of the purported signer.

This dynamic Knowledge-Based Assessment will generate a set of five random questions that only the target individual will know the answers to, as they are based on public data, credit reports, and other records databases specific to the individual. RON platforms require every signer to complete this test in under two minutes and pass with a score of at least 80%. If an individual fails, then they may retake it one more time, but then if they fail, they are locked out for 24 hours, meaning the notary cannot use this method to verify the identity for the notarization.

The credential verification assesses the ID card for authenticity against independent data sources and looks for signs of tampering and illegitimate documents. In this scan of the ID, the closing platform captures the front and back of the ID, and the data is verified against the issuing state or authority’s template, and advanced forensics detect signs of tampering or other fraudulent activity. The notary can review the data from these assessments and determine more accurately the identity of the person signing.

Meanwhile, the closing platform employs an additional dynamic authentication process that uses various criteria, such as phone numbers, addresses, and facial recognition, to verify the seller’s identity. Furthermore, the entire transaction is recorded, providing investigators with a video recording of the transaction and evidence of any fraudulent activity.

Lessons From Electronic Medical Records
Many of us can recall the old days when a visit to the doctor’s office involved physical papers crammed into manila folders and piled up in overflowing file cabinets. Our private information was wedged between the worn-out charts of other patients, all stored in a massive wall of files behind the reception desk.

With the federal legislation known as the Affordable Care Act, the medical industry was finally pushed into the 21st century, and paper-based systems became a thing of the past. Those who remember this transition might recall the uncertainty that such a change would bring, largely around the question of security. However, we’ve all accepted this and welcomed it into our lives, realizing the ease it takes to have information at our fingertips with these advancements.

Thanks to the adoption of electronic medical records, patients now have access to a level of convenience and flexibility that was once impossible. Of course, patients can still go into an office or clinic when appropriate, but it’s not always necessary.

For example, a quick video chat with your provider and an electronic prescription can address a minor concern without requiring an in-person visit to the office. In addition, with prescriptions electronically sent and easily picked up, patients can focus on their day rather than spending hours in the waiting room.

The Transition to RON
As the transition to RON gains momentum, it’s worth noting that it bears some resemblance to the shift to electronic medical records. The industry has looked at these models and anticipated and addressed the concerns, as the platform is equipped with advanced tools and safeguards that improve efficiency and convenience and provide a level of security that surpasses anything seen before. Providing lenders with the flexibility to choose fully remote and hybrid options is the backbone of RON and electronic notarization. Doing so while also protecting consumer information and mitigating fraud is the new gold standard.

We are on the precipice of incredible change in the mortgage industry. I encourage everyone to explore RON and the flexibility it provides. Let’s embrace our digital future!

About Author: Brooke Adams

Brooke Adams is the General Counsel, Chief Compliance Officer, and Corporate Secretary of Stavvy. Brooke is a subject matter legal expert on remote notarization, electronic mortgages, UETA, and ESIGN. As an accomplished attorney, Brooke joined Stavvy as General Counsel and Chief Compliance Officer after nearly nine years with Fannie Mae, where she served as the primary legal department representative providing necessary regulatory, compliance, corporate, and governance advice to Fannie Mae while working with its top lenders. Brooke was involved in complex, customer-facing residential mortgage transactions with cross-functional teams, helping to draft, review, and negotiate transactional documents with third-party customers and internal clients. She was also responsible for risk mitigation and coordinating the response team's compliance with contractual obligations under government obligations. Prior to her work at Fannie Mae, Brooke was a private equity and venture capital attorney at Weil, Gotshal & Manges LLP, and Goodwin Procter LLP.

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