Court Affirms Electronic Notes are Enforceable in Florida

Recently, the District Court of Appeal for the Fourth District of Florida affirmed that electronic signatures are enforceable against a borrower in a foreclosure action. On April 1, 2008, two borrowers executed an electronic note in favor of their lender. The note was secured by a mortgage, which listed their lender as the lender and MERS as the mortgagee. Shortly thereafter, the lender assigned the note and mortgage to a new lender (Lender) as the lender and a bank (Bank) as the servicer.

In January 2010, the Bank filed an action to foreclosure the mortgage based on the borrowers’ default. In its amended complaint, filed in November 2010, the Bank alleged that the Lender was the owner of the note and that the Bank was the servicer of same. The Bank attached copies of the mortgage and the electronic note to the amended complaint. On the last page of the electronic note, it listed time-stamped electronic signatures of the borrowers.

In June 2013, the Bank filed an "E-Note Certificate of Authentication," in which the Bank’s assistant vice president stated that the Bank was acting as the servicer for the Lender, and as such, the Bank maintained a copy of the borrowers' electronic note on the Lender’s behalf. The certificate also stated that the Bank’s electronic record system stored and maintained the note as it was originally executed and transmitted and that such system had encryption controls in place to protect the note against alteration. Along with a copy of the electronic note, also attached was a document from MERS showing that the Bank had electronic possession of the note.

In October 2013, the borrowers answered the Bank’s amended complaint and alleged that the Bank lacked standing because the Bank failed to allege how or why the Bank became the owner and holder of the note and mortgage. The borrowers also claimed there was "lack of authenticity and/or validity of any signatures or endorsements on the Note . . . pursuant to Florida Statute 673.3081." The trial court, however, found no merit in the borrowers’ arguments and entered a final judgment of foreclosure in favor of the Bank. The borrowers appealed.

On appeal, the District Court of Appeal affirmed the trial court’s decision, holding that the electronic note was valid, and allowed the Bank to foreclose on the mortgage, relying on Florida Statute 668.50, the Uniform Electronic Transactions Act (the Act). The court determined that on its face, the electronic note was a "transferable record" because: (1) it was an electronic record that would be a note under Chapter 673 of the Florida Statutes if it was in writing; and (2) the borrowers expressly agreed in the note that the note "may be Authenticated, Stored and Transmitted by Electronic Means . . . and will be valid for all legal purposes . . ." The Bank also adequately proved that the Lender had control of the electronic note by showing that the Bank used a system "reliably establishing [Lender] as the entity to which the e-note was transferred." Lastly, the Bank’s evidence further satisfied the requirements under the Act by demonstrating that the Bank stored the electronic note in such a way that there was only a single authoritative copy of the note, which was unique, identifiable and unalterable.

Original electronic documents should not be automatically questioned for lack of validity. Those that are properly electronically signed, stored and authenticated in accordance with the requirements of the Act may be just as valid as original paper documents. While many lenders still require original signed documents, lenders and borrowers should be aware of the validity of electronically signed documents as long as the requirements of the Act are strictly followed.