The COVID-19 pandemic has changed the way real estate closings are conducted in New York state. Attorneys must now take extra steps to ensure that each party is protected and the transaction closes smoothly, especially since this “new normal” may last long after stay-at-home orders are lifted.
Before COVID-19, New York real estate closings typically took place with all parties represented in person at the closing table (because New York only permits recording of original executed documents that have been signed in the physical presence Notary Public). As a result, each party was able to “wet sign” documents and hand the originals to the proper party at the closing table.
Funds could be exchanged at the same time as documents were signed and exchanged, and issues could be resolved at the closing since all decision makers were in the same room. Current safety concerns, social-distancing requirements, and stay-at-home orders have made full in-person attendance closings inadvisable.
Now closings rarely have all parties physically represented. Many closings are being held by videoconference or by mail away, and no more than two or three people are typically at the same location at a time. When they are in the same presence, protective gear is required. Documents are countersigned and sent via email and overnight courier. Because of these unique circumstances, additional steps should be taken to ensure that the seller’s mortgage is properly satisfied and the new mortgage is properly recorded.
Closings by videoconference are now possible in New York after Executive Order 202.7, which is effective until June 6, 2020 unless further extended. Under this order, a Notary Public (typically someone representing the new lender (the “bank attorney”) or the company insuring title to the property (the “title closer”)) may notarize documents after conducting a videoconference with the signer (i.e., the buyer or seller). The signer must affirmatively represent that he or she is physically located in New York at the time of the videoconference and must show his or her identification to the Notary during the videoconference. The signer must email or fax the signed documents to the Notary the same day as they are signed and must send the original signed documents to the Notary to be received within 30 days of signing. The Notary should ensure that the procedure meets all the requirements of the Executive Order.
Attorneys should beware of possibilities that failure to comply with proper processes could invalidate a videoconference notarization, which may jeopardize the validity of the transaction or the new mortgage. For example, the signer must represent that he or she is located in New York at the time of signing. The closing will also be prolonged by the added steps for videoconference notarization, which will also add courier fees, and some lenders require additional documents to be signed (for example, confirming the validity of the notarization procedure as well as the transaction and the new mortgage). Several lenders prohibit videoconference notarization and several title closers will not provide it, even if permitted by law.
During the pandemic closings have typically been held at the buyer’s attorney’s office or the bank attorney’s office with the buyer signing documents in front of the buyer’s attorney, the bank attorney, and/or a title closer. The seller has rarely been physically represented. Attorneys must ensure that all documents are correctly executed (e.g., the correct number of duplicate originals are signed, documents are signed in the correct places, etc.) and that all parties have received all required funds and copies or originals of all necessary documents. This may again impose delays and courier fees.
Additional safeguards must also be imposed for in-person closings with social distancing measures being taken. For example, New York now requires face coverings in public places. As such, anyone notarizing a signature should require signers to remove their face covering to compare with the picture on the signer’s identification. This practice once helped to recognize an attempted fraud wherein a borrower had sent a third party to the closing because she became ill and her interest rate lock was about to expire.
Safeguards must also be taken in funding the transaction. Funds are more often wired rather than issued through certified check, which brings additional possibilities for fraud. Hackers attempt to infiltrate email chains organizing closings, and then ask title companies or buyer or bank attorneys to change funding methods, most often requesting a wire to a new bank. Attorneys and title companies should verbally verify all funding instructions (especially wire instructions) using trusted telephone numbers and requesting verified information and documents. A safe rule of thumb is to assume that all wire instructions are fraudulent until proven otherwise.
Until all necessary funds and documents are in the right hands, the lender may delay funding and/or the title company may delay the recording of the deed. For example, the buyer has signed all documents but is waiting for a copy of the signed seller’s Closing Disclosure before the transaction can be funded. Such delays may prolong the transaction for several days. Such delays may also become complicated if they conflict due to necessary steps not occurring simultaneously. For example, in transactions involving coop units, the lender may refuse to fund the transaction until the bank attorney has received the original stock and proprietary lease, while at the same time the coop may refuse to release the stock and lease until the transaction has been funded. Because parties may all be in different locations, the release of the stock and lease may not be simultaneous with the funding of the transaction. As such, the order of events must be negotiated beforehand.
Long after stay-at-home orders are lifted, for safety measures, we expect remote closings to become the new normal. The days of ten people sitting around a closing table are likely gone for at least the next several years, if not forever. As such, attorneys, real estate brokers, title companies, and all third parties in the real estate industry, should plan for the future accordingly.