Two bills that have been previously introduced are back on Capitol Hill and finally making some headway this year. On April 19, the U.S. House of Representatives voted in favor of the Secure and Fair Enforcement (SAFE) Banking Act. Facing little opposition in the House, it now moves to the Senate. Meanwhile, the Secure Notarization Act was also reintroduced this session, calling for immediate nationwide use of Remote Online Notarization (RON), creation of minimum standards, and affirm interstate recognition of RON.
Both bills have potentially huge implications for those working in the title insurance and settlement services industry.
The SAFE Banking Act
The SAFE Banking Act was first introduced in 2019 and has been re-introduced with bipartisan support. If it passes the Senate, the bill will make it easier for professionals in financial services to work with the cannabis industry. The federal banking regulators will no longer be able to:
- Prohibit or penalize a depository institution for providing financial services to a cannabis client
- Take negative or corrective supervisory action on loans made to cannabis clients
- Dissuade or discourage a depository institution from working with a cannabis client
- Terminate or limit deposit insurance for servicing a cannabis client
The bill, however, doesn’t address federal legislation or descheduling of cannabis. Senator Chuck Schumer wants a more holistic bill that addresses legalization at the federal level and “communities that have been most affected by these draconian laws” before it “all goes to the big shots.”
That wish was recently granted when two Republican lawmakers introduced a bill on May 11th, dubbed the “Common Sense Cannabis Reform for Veterans, Small Businesses, and Medical Professionals Act,” which aims to:
- Legalize marijuana at the federal level
- Remove marijuana from the federal Controlled Substances Act
- Protect banks that service state-legal cannabis businesses
- Allow veterans treated by the Veteran’s Administration (VA) to receive medical marijuana in compliance with state laws
Other senators like Senate Banking Committee Chairman, Sherrod Brown, want to see sentencing reform alongside banking reform, which isn’t explicitly addressed in either bill.
Real estate deals for cannabis clients stifled
The cannabis industry has been long encumbered by contradictory federal and state laws surrounding medical and recreational marijuana. As a result, marijuana manufacturers, distributors, and retailers are running cash-only businesses, putting their employees and profits at greater risks of theft.
Obtaining title insurance or escrow services is also problematic for these “pot-entrepreneurs” as many title companies are wary to hold funds or issue policies for any business related to marijuana. Some title insurance companies were willing to risk working with these businesses with exclusions for coverage over “governmental actions resulting from the property being used for the production, processing or sale of marijuana, such as civil and criminal forfeiture of the property pursuant to federal law.”
The compromise worked as a bandaid until 2018 when Jeff Sessions, who was Attorney General at the time, rescinded the Cole Memo. A policy from the prior administration, which created a federal laissez-faire approach to legalized marijuana.
Uncertainty around how the Trump administration would respond to financial service providers led many title and escrow professionals to back away from all deals with a cannabis client.
In April of 2019, Fidelity National Financial began prohibiting the handling of escrow or issuing title insurance for land that was intended for any use related to marijuana. Shortly after, Old Republic Title Company, First American Title Company, and Chicago Title Insurance Company followed with similar policies.
Without these services, it’s virtually impossible for a seller to transfer clean title or for a buyer to secure loans for commercial real estate. So while these businesses may operate legally according to state law, the ability to grow and protect them are significantly hampered.
Now, sentiments have changed and both democrats and republicans seem interested in easing the restrictions that have previously stymied business growth in the cannabis industry. The certainty both bills will provide means that the title industry can once again start working with these clients without worry.
As more states decriminalize marijuana, the impact on real estate will grow as well as opportunities for title companies to serve more clients.
The SECURE Notarization Act
The SECURE Notarization Act was first introduced in 2020 during the peak of the coronavirus pandemic to standardize and approve the national use of Remote Online Notarization. Even as more states pass their own RON laws, organizations like the American Land Title Association and the Mortgage Bankers Association are promoting the benefits of the national adoption of RON.
In a recent post from ALTA, some of the main objectives of this bill are highlighted:
- Permit immediate nationwide use of RON
- Create national minimum standards for its use
- Provide certainty for the interstate recognition of RON
Some of the minimum standards include establishing a notary’s and signer’s identification through at least two processes, including knowledge-based authentication and scanning government-issued identification, tamper-evident technology, and long-term storage of video recordings of notarial acts. Digital certificates are another way of establishing an end user or notary professional’s identity before completing a remote online notarization.
While the legislation sets minimum standards, it doesn’t supersede any state’s current requirements for notaries where RON is already available.
Beyond the use of RON for emergencies, it’s proven to be a tool of convenience for many customers who can’t travel to an in-person closing or prefer the comfort of home. Busy homebuyers can close on a property while on vacation or at the office.
Opposition from California Notaries
Not everyone is thrilled with the idea of nationwide RON though. The California League of Independent Notaries released a statement opposing the SECURE Notarization Act of 2021. At the heart of their resistance is the concern for potential fraud, data privacy issues, and job security of independent notaries.
As notaries, protecting the public from fraud is top of mind, but the technology built in by major RON providers like ProperSign is more accurate at spotting a fake ID than the naked eye. In one survey, members of the National Notary Association who participated in a face-matching test correctly identified imposters about 72% of the time. RON software can be utilized by notaries to weed out any imposter. There’s also the option to require two-factor authentication for all participants of a signing event.
Technology that uses biometrics to aid notaries in eliminating that kind of fraud is a double-edged sword as it’s the center of the second concern. The legislation doesn’t prohibit the selling or sharing of recordings for training sets for facial recognition algorithms. Many people have anxiety about the use of facial recognition technology and how recordings of notarial acts will be stored and accessed, so it’s important to work with providers who have transparent policies on who can access the recordings as well as other personal data collected for a notarization. Recently, Florida governor, Ron DeSantis approved amendments to its RON law, adding more provisions and clarifications to address some of these concerns.
Finally, RON is becoming less cost-prohibitive for independent notaries as more solutions enter the market. RON-approved and well-trained notaries with an entrepreneurial spirit will not be replaced by tech companies. Clients, especially title and mortgage professionals, want to work with notaries and loan signing agents who provide a high caliber of customer service whether they are meeting face-to-face or screen-to-screen.
Remote doesn’t have to mean impersonal.
Virginia notaries have had access to RON since 2012 with no indication that fraud has increased or that notary jobs have been jeopardized.
More interactions are becoming increasingly digital, including business transactions, and both notaries and title agents will have to decide if they want to expand their current business models to accommodate options like RON.
Both the SAFE Banking Act and Secure Notarization Act provide certainty for title, real estate, and notary professionals to make better business decisions. While not every title company may be interested in providing services to marijuana businesses or implementing RON, granting the clear choice will undoubtedly impact the industry positively.