Despite a strange and difficult time for New Yorkers amidst social distancing and stay-at-home orders, all industries are looking to technology to keep businesses moving. As a result, real estate and legal industry professionals have begun utilizing more virtual closings and escrow closings.
How Do Escrow Closings Work?
In the commercial world and outside of New York City, escrow closings are commonly referred to as the gap closing. In this format of closing — which has become more prevalent during with the current crisis — the participants (buyers, sellers and attorneys) employ a third party that acts as an escrow agent so they don’t have to attend a physical closing. The escrow agent can be a title company or an attorney who holds documents in escrow, finances in escrow or some kind of intermediary.
Then, each party signs and notarizes their documents separately. This is usually done through DocuSign or in-person in a one-on-one meeting. The documents are then delivered to the third-party escrow agent — who collects all of the documents either online, by messenger or by package delivery — and holds them in escrow.
Once all of the signed documents and funds have been delivered to the escrow agent and all of the closing conditions are met, the transaction formally closes. As always, the deal is complete when the money is released to the seller and the deeds/documents are received by the buyer.
How Are Virtual Closings Different?
Virtual closings are a bit different in that there is essentially no gap. So, the parties involved do not employ a third-party escrow agent. Instead, they utilize technology and electronic means to sign documents and exchange funds. This can happen over the course of one day or at a virtual closing.
A key challenge in a virtual closing is the notary because the notary must witness the document signing live. However, this recently changed drastically when Governor Cuomo released an executive order allowing virtual notarization of documents. The order states that, under New York State law, performing notarizations using audio-video technology is permitted under the following conditions:
- A video conference is in place to allow for direct, live interaction between the notary and the person signing the document
- The signer must present a valid photo ID in front of the camera so the notary can see it.
- The person signing must confirm to the notary that they are in the state of New York.
- The person signing must sign the document and send it by email or fax on the same day.
- The notary then notarizes the copy of the document they receive and sends it back to the person who signed it.
- Within 30 days of the electronic notarization,the notary re-notarizes the original signed document after receiving it and files it along with the electronically notarized copy.
While there is no talk of this option continuing once New York opens up again, it will be interesting to see whether these methods of virtual closings will be maintained and continue to advance with technology.