North Carolina has adopted its version of the Uniform Real Property Electronic Recording Act. We anticipate that with the exception of some of the larger metropolitan areas that electronic recording will be some time in coming to most areas of the State.

Under authority granted in earlier electronic commerce legislation Judy Gibson the Mecklenburg County Register of Deeds has led the way in developing standards for electronic recording and has been accepting cancellation instruments electronically for some time now. Ms. Gibson and Ann Shaw, the Randolph County Register of deeds, have labored hard and been instrumental in assuring that the resulting legislation will be as workable as the legislative process will allow.

Working out the details of electronic notarization has been one of the major issues in developing a feasible electronic recording Act. The problem is that it is easy to lose sight of the fact that with regard to acknowledgments, a notary's function is simply to authenticate the execution of documents…nothing more. In truth, when utilizing modern security encryption in connection with electronic transmission of data from the originator, notarization is an anachronism and completely irrelevant.

Traditional concepts of security and fraud prevention with regard to acknowledgment of paper documents really do not apply to electronic documents. The early drafts of this legislation involved two separate Bills and the Notary bill contained many ill-considered provisions that were simply adding ‘electronic’ to paper concepts. Some of those are still with the resulting legislation. Some of these provisions are here in an attempt to draft legislation that treats both forms of authentication in the same fashion. Some are included because traditional concepts are often hard to leave behind. It is probably not unfair to anticipate a continuous evolution of the provisions concerning electronic acknowledgements as experience demonstrates that many of the traditional paper concepts really are unworkable in an electronic environment.

A Study Commission appointed by the Legislature in 2004 promulgated the legislation. One issue extensively debated by the Commission was the process of setting standards for electronic recording. The Secretary of State was successful in controlling that process. In the final version the Secretary of State is free to adopt any standards without regard to whether the primary constituents (Mortgage Lenders, Registers of Deeds, Clerks of Superior Court, Attorneys, etc.) deem them prudent or practicable. This may or may not prove to be a problem depending upon the person filling the office.

N.C.G.S. Section 47-16.5 directs that the Secretary of State shall be the standard-setting agency for electronic recording and shall "adopt standards to implement this Article upon recommendation of the Electronic Recording Council. The Secretary of State may direct the Council to revise any portion of the recommended standards the Secretary deems inadequate or inappropriate.

The basic thrust of the legislation occurs in N.C.G.S. Section 47-16.3 which validates electronic documents.

"(a) If a law requires, as a condition for recording, that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic document satisfying this Article.

(b) If a law requires, as a condition for recording, that a document be signed, the requirement is satisfied by an electronic signature.

(c) A requirement that a document or a signature associated with a document be notarized, acknowledged, verified, witnessed, or made under oath is satisfied if the electronic signature of the person authorized to notarize, acknowledge, verify, witness, or administer the oath, and all other information required to be included, is attached to or logically associated with the document or signature."

The most significant changes come in the sections that effect a major rewrite of Chapter 10B, which regulates Notaries. We will comment on some of the most important changes in the law in their order of appearance in the legislation. Space limitation prevents an in-depth analysis of all of the significant changes.

N.C.G.S. Section 10B-14 is the section that deals with a notary’s powers and limitations.

Subsection (b) provides that "A notarial act shall be attested by all of the following:

(1) The signature of the notary, exactly as shown on the notary's commission.

(2) The readable appearance of the notary's name, from the notary's typed or printed name near the signature.

(3) The clear and legible appearance of the notary's stamp or seal.

(4) A statement of the date the notary's commission expires."

Note that this continuation of the expiration date would be an anachronism if the information were available on the Secretary of State’s Website. This provision is so troublesome with respect to conveyances that it has its own corrective provision that is regularly updated (see new Section 10B-36).

Subsection (c) contains the disqualification provisions and we would like to discuss some of them.

Subsection (1) of Subsection (c) clarifies the ‘presence’ issue. "The principal or subscribing witness is not in the notary's presence at the time the notarial act is to be performed; however, nothing in this Chapter shall require a notary to complete the certificate in the presence of the principal or subscribing witness."

Subsection (3) and (4) of Subsection (c) add a level of discretion to the act of notarization that requires a judgment bordering on drawing a conclusion of law. We anticipate that these provisions could prove very troublesome due to the subjective nature of the judgments.

(3) The principal or subscribing witness shows a demeanor that causes the
        notary to have a compelling doubt about whether the principal knows
        the consequences of the transaction requiring a notarial act.

(4) The principal or subscribing witness, in the notary's judgment, is not
        acting of the principal's or the subscribing witness's own free will.

Subsection (6) of Subsection (c) will likely make it difficult for settlement companies to fashion compensation packages on a per closing basis. The notary is disqualified if the "notary will receive directly from a transaction connected with the notarial act any commission, fee, advantage, right, title, interest, cash, property, or other consideration exceeding in value the fees specified in G.S. 10B-20, other than fees or other consideration paid for services rendered by a licensed attorney, a licensed real estate broker or salesperson, a motor vehicle dealer, or a banker."

Subsection (d) of Subsection (c) is a clarification while subsection (e) may be considered to alter the common law with regard to execution of instruments in that there is no legal requirement for witnesses.

(d) A notary may certify the affixation of a signature by mark on a record presented for notarization if:

(1) The mark is affixed in the presence of the notary;

(2) The notary writes below the mark: "Mark affixed by (name of signer by mark) in presence of undersigned notary"; and

(3) The notary notarizes the signature by performing an acknowledgment, oath or affirmation, jurat, or verification or proof.

(e) If a principal is physically unable to sign or make a mark on a record presented for notarization, that principal may designate another person as his or her designee, who shall be a disinterested party, to sign on the principal's behalf pursuant to the following procedure:

(1) The principal directs the designee to sign the record in the presence of the notary and two witnesses unaffected by the record;

(2) The designee signs the principal's name in the presence of the principal, the notary, and the two witnesses;

(3) Both witnesses sign their own names to the record near the principal's signature;

(4) The notary writes below the principal's signature: "Signature affixed by designee in the presence of (names and addresses of principal and witnesses)"; and

(5) The notary notarizes the signature through an acknowledgment, oath or affirmation, jurat, or verification or proof.

Section 10B-26 contains a model Notarial certificate for an acknowledgment. While the language of the section ostensibly does not conflict with Chapter 47’s corresponding provisions as conformed by Section 9 of this Bill, confusion may arise due to differences in the effective dates. We expect this to be corrected in a technical correction Bill and may already have occurred.

(a) When properly completed by a notary, a notarial certificate in substantially the following form may be used and shall be sufficient under the law of this State to satisfy the requirements for a notarial certificate for the acknowledgment of a principal who is an individual acting in his or her own right or in a representative capacity. The authorization of the form in this section does not preclude the use of other forms.

________________ County, North Carolina

I certify that the following person(s) personally appeared before me

this day, each acknowledging to me that he or she voluntarily signed

the foregoing document for the purpose stated therein and in the

capacity indicated: name(s) of principal(s).

Date: __________________ _____Official Signature of Notary ____

Notary's printed or typed name, Notary Public

(Official Seal) My commission expires: ___________

(b) By signing a notarial certificate for the acknowledgment of a principal who is an individual acting in his or her own right or in a representative capacity substantially in the form set forth in subsection (a) of this section, the notary thereby certifies:

(1) That the principal acknowledging his or her signature appeared in person before the notary on the date indicated;

(2) That the principal stated to the notary that he or she voluntarily signed the record for the purpose stated therein;

(3) That, if the principal signed the record in a representative capacity, the principal stated that he or she signed the record in the particular representative capacity; and

(4) That the notary has either

1. personal knowledge of the identity of the principal or
2. satisfactory evidence of the principal's identity.

Section 10B-36 is the new corrective section validating certain errors of notaries. Unfortunately it was not updated from the prior version so errors occurring between February 1, 2004 and the effective date of the Act are not corrected. Subsection (b)(1) has not been corrected either.

(a) Any acknowledgment taken and any instrument notarized by a person prior to qualification as a notary public but after commissioning or recommissioning as a notary public, or by a person whose notary commission has expired, is hereby validated. The acknowledgment and instrument shall have the same legal effect as if the person qualified as a notary public at the time the person performed the act.

(b) All documents bearing a notarial seal and which contain any of the following errors are validated and given the same legal effect as if the errors had not occurred:

(1) The date of the expiration of the notary's commission is stated,

whether correctly or erroneously.

(2) The notarial seal does not contain a readable impression of the notary's

name, contains an incorrect spelling of the notary's name, or does not

bear the name of the notary exactly as it appears on the commission, as

required under G.S. 10B-24.

(3) The notary's signature does not comport exactly with the name on the

notary commission or on the notary seal, as required by G.S. 10B-14.

(4) The notarial seal contains typed, printed, drawn, or handwritten

material added to the seal, fails to contain the words "North Carolina"

or the abbreviation "NC", or contains correct information except that

instead of the abbreviation for North Carolina contains the

abbreviation for another state.

(c) All deeds of trust in which the notary was named in the document as a trustee only are validated.

(d) All notary acknowledgments performed before January 1, 1953, bearing a notarial seal are hereby validated.

(e) This section applies to notarial acts performed on or before February 1, 2004.

Section 10B-38 is the beginning of the Electronic Notary Act. Many of the provisions essentially parallel the preceding provisions for paper notarizations. Security measures issues are addressed in Section 10B-50. Subsection (e) provides that the "Secretary may require an electronic notary to create and to maintain a record, journal, or entry of each electronic notarial act. The rule-making authority contained in this subsection shall become effective 18 months after the effective date of this act." Inclusion of this provision was insisted upon by the Secretary of State. It is one of the more controversial and the 18-month moratorium was conceded in order to see if other states adopted a journal requirement, whether it would be possible to accomplish it electronically without double entry and to see whether it would even prove necessary.

SECTION 13 of the bill reads as follows:

Sections 1, 2, 10, and 13 of this act are effective when they become law (probably August 2005. Ed.). The remainder of the act becomes effective December 1, 2005, and applies to notarial acts and applications for notary commissions and recommissions made on or after that date. Notary commissions issued under Chapter 10A of the General Statutes prior to December 1, 2005, shall remain valid unless otherwise revoked or suspended by the Secretary until those commissions expire as provided in Chapter 10A. G.S. 10B-35 and G.S. 10B-57 apply to offenses committed on or after December 1, 2005, without regard to whether a commission was issued under Chapter 10A or Chapter 10B of the General Statutes. Notary instructor certifications issued under G.S. 10A-7 shall remain valid until the date of expiration provided for on the certificate, and persons holding those certificates may provide instruction until their certificates expire.