What are eNotes – and do you need them for your business?

Why eNotes are better, faster, and secure

eNotes, or electronic promissory notes, play a big role in remote online notarizations (RON) – and a variety of industries.

So, here’s a crash course on the subject!

You’ll find out:

1. What are eNotes?

eNotes are electronic promissory notes, legal documents that require borrowers to pay as promised. Promissory = promise. So when you sign a promissory note as a borrower, it means you’re legally obligated to pay the lender a certain amount at a certain time. It also means you understand and agree to all of the loan’s terms. So most major loans need promissory notes to make them binding – whether for tuition, a first-time mortgage or second home, a car, or something else. If someone breaches the terms of an eNote, they might face foreclosure, repossession, or other tough consequences.

The world of eNotes, explained

Like the eNotary market at large, eNotes make it possible to continue with business as usual when you can’t meet face-to-face. They’re not new, but the global coronavirus pandemic vastly increased their use.

In fact, data from the Mortgage Electronic Registration Systems – MERS® eRegistry show a wild year-over-year leap: 127,178 eNotes were created in 2019, but an incredible 462,671 were formed in 2020!

The use of RON also spiked dramatically. According to a survey of eNotary providers by the American Land Title Association (ALTA), the organization discovered a 547% increase in eNotarizations in 2020, over 2019.

eNotes can help you prevent disruptions in your business while reducing the risk of loss, damage and human error.

2. How eNotes work

Electronic promissory notes include the names of the lender and borrower, the loan amount, the start date of the loan, payment options and information (including the amount and frequency of payments), and the date the loan should be paid in full. Sometimes eNotes have special requirements, like including a clause that reads you’re okay with using digital notes.

eNotes are signed and sealed in real-time, and created as scam and tamper-proof MISMO SMART Doc® XML files. This ensures they’re as legally binding as their paper counterparts. It also means no one can make unauthorized changes, unlike easy-to-edit JPEGs and PDFs.

Of course, storage is a big concern too. That’s why eNotes are kept in secure data warehouses called eVaults, and eNote transactions are recorded in an authorized eRegistry, like MERS® eRegistry for the mortgage industry.

So for home sales online, think: eNotes > eVaults > MERS® eRegistry

Fun fact: SMART is an acronym.

Securable ◦ Manageable ◦ Archivable ◦ Retrievable ◦ Transferable

Blockchain technology, inherently tamper-proof with transparent tracking, makes it an excellent prospect for the future of eNote storage.

Let’s say you’re storing an eNote. It would be stored even more securely because it would be encrypted so only you could read it, using your encryption key. And with decentralized storage, your file would be basically broken up into pieces through a process called sharding. It saves horizontal strips of your file on different servers so it’s never saved all in one place. Blockchain technology presents an incredible opportunity for growth with transparent costs and tighter security.

3. How professionals benefit from eNotary services

If you ever work with an eNotary, they’ll use tools like digital audio and video conferencing so you can collaborate while staying compliant, from afar. The process is virtually the same (ahem, pun intended), but you’ll get digital seals and certificates while saving a lot of time.

eNotary services are probably a great fit for your business. Nearly everyone needs one, at some point or another–and some need them on a regular basis.

If you’re in one of the industries or careers below, you’ll probably need them all the time:

If you’re in banking, you might use them for leases, loans, credit card applications, mortgages, digital onboarding and more.
Financial planners, investment advisers and securities brokers need eNotarizations for everyday agreements and disclosures. They can also buy mortgages on the secondary market. These eClosings call for the transfers of eNotes from their original owners.
Car dealers use electronic notarizations for leases, financing loans, bills of sale and car titles.
RON are essential for the real estate industry. You might be surprised to learn how many homes are sold electronically, some sight unseen! Real estate agencies, mortgage servicers, and title companies use them for mortgages, deeds, and affidavits– they’re pivotal for warehouse lenders too. Landlords also use them for leases and lease guarantor forms.
Attorneys and law firms use them for contracts, retention, fee and other pricing agreements, court documents, powers of attorney, and what seems like countless other occasions.
Government agencies use eNotary services for applications, tax forms, loan and grant applications, and digital onboarding.
Insurance agents use electronic notaries to fast-track policy agreements, policy renewals, and claims processing.
Wholesale businesses, retailers, and manufacturers are usually geographically scattered. RON help them get signatures and verifications for purchase orders, licensing agreements, and non-disclosure agreements without excessive travel.
Finally, the educational sector uses these services all the time. Colleges, universities, student loan servicers, and education-specific government agencies use eNotary services for admissions onboarding and key financial aid and student loan applications.

Electronic notary services bring greater speed, ease, and convenience to the traditional verification process.

Use eNotes to:

Reduce paper waste
Reduce or eliminate business travel
Reduce the risk of error (miscommunication happens)
Save money via reduced printing and transportation costs
Complete transactions faster and work more efficiently
Share document previews before appointments for meeting prep or to answer questions or concerns in advance

4. Legal considerations

Electronic promissory notes are only legally binding when they’re treated like traditional paper notes. In the eyes of the law, eNotes have to align with the legal promissory note definition.

They should meet this criteria too:

There’s a single, authoritative copy
The copy indicates who controls it
The person who controls it usually has to have it in their possession
Any copies should be clearly marked as such – and records should be kept (who received a copy and when, e.g. when a borrower receives a copy)
If there’s an authorized change of ownership, like transferring a mortgage from a servicer to a buyer on the secondary market, the new owner needs to be the new, exclusive owner of the eNote and have it in their possession, accessible from an eVault

Like eNotary services, there’s a little variation when it comes to legality from state to state. American eNotes generally fall under two domains – the Uniform Electronic Transaction Act (UETA) or the Electronic Signatures in Global and National Commerce Act (E-SIGN).

Created in 1999, the UETA was an effort to get individual states to give eBusiness the okay. Then in 2000, Congress passed a federal initiative, E-SIGN. Together they make different aspects of eBusiness, such as eNotes, eNotarizations, and eSignatures widely legal across the country and in U.S. territories.

Then it gets a little tricky.

A few states and territories came up with eSignature laws of their own, while others cherry-picked sections of the UETA and E-SIGN.

For example, New York skipped the UETA to come up with their own act, the Electronic Signatures and Records Act (ERSA). It doesn’t allow eSignatures for wills, trusts, do-not-resuscitate orders, negotiable instruments, (certain types of contracts) and other transactions that give a person or a company a title.

As of January 2020, Florida is one of only a few states allowing eSignatures and eNotarizations for wills. The Sunshine State’s new law is more comprehensive than E-SIGN; E-SIGN exceptions include wills, testamentary trusts, and divorce and adoption paperwork.

And individual counties have a say too!

Thankfully, eNotary services are accepted in most places in the U.S. – and federal acts make eNotes, eSignatures, and other eDocumentations legally recognized in every state. Let’s say you get an eNotarization in Texas. That notarization will be legally recognized and binding in every county and state in the country, regardless of local regulations.

5. PandaDoc Notary: The eNotary service for your needs

If you’re wondering where to start, look no further than PandaDoc Notary. We keep up with the latest industry and state compliance standards so you don’t have to. And when you work with us, you can be sure your clients are exactly who they say they are. We confirm their identities with state-standard, knowledge-based authentication (KBA) and live visual/electronic credential evaluation so you can work with confidence.

We also create a secure digital certificate for every transaction, record every job and store it in your cloud-based, electronic journal (provided by us). Enjoy the ability to stay compliant with ease.

Wrapping up

eNotes have opened up a world of possibilities from real estate and banking to retail. Let them take your business to the next level, as you work faster, reduce errors and finalize agreements – without the need to meet face to face.

FAQ

Does a promissory note have to be notarized?

A promissory note doesn’t always have to be notarized, but notarization or a witness might be required for certain types of promissory notes or as required in certain jurisdictions. Even when it’s not required, it’s a great idea to get an eNotary involved. Notarization gives you an extra layer of protection, in case you ever need to enforce the terms of your eNote. Fun Fact: Notaries have been around since Ancient Egypt! Enjoy this fun read by the National Notary Association (NNA).