National Notary white paper authored by MIT professor
By COCO SALAZAR
1/30/2006

An improved electronic notary system could go a long way toward reducing mortgage fraud, according to a white paper by a Massachusetts Institute of Technology professor.

Daniel J. Greenberg, director of MIT's E-Commerce Architecture Program and the paper's author, calls for quick action by government, industry and professional associations to provide a "sound strategy" for e-notarization to help stagnate the rising tide in forgeries and frauds in mortgage transactions, among other things.

"As a society, we may never be able to stop criminals from obtaining fraudulent identification documents, but notaries can pose a formidable obstacle and deterrent to these criminals and provide an independent record that may be the only evidence prosecutors have to convict a forger," Greenwood said in the report.

"Those who regulate notaries public would be derelict in their duty if they failed to effect the rulemaking necessary to transition to a reliable system of e-notarization," he added.

The Electronic Notarization: Why It's Needed, How It Works, And How It Can Be Implemented To Enable Greater Transactional Security paper, published by the National Notary Association, outlines the legal and technological issues that must be addressed to ensure a convenient and secure e-commerce environment.

"It is in the interest of business and government to implement systems that protect these rights," the Notary Association said in an announcement. "The Notary Public, charged with positively identifying individuals during such sensitive transactions as purchasing a home, serve to shield the public from insidious identity and document schemes."

Greenwood notes that electronic documents of paperless mortgages will need to receive the same level of security as their paper counterparts, but laws and regulations to guide notaries in the performance of e-notarizations are lacking.

"While certain time-honored principles and practices of paper-based notarization still apply, such as screening the signer as a mandatory first step, rules for affixing a notary certificate on an electronic document and for keeping a digital record of an electronic act, the second and third key steps, have yet to be enacted in any widespread way among the states," he wrote.

A "relatively simple and straightforward" approach to the security problem is the "secure closed system" in which a business utilizer of notarizations employs secure software to facilitate its document work flow. For example, it would involve an in-house system with "applications layer security," such as "widely adopted protocols and software modules that provide authentication, confidentiality, protection against tampering, and other features."

With this method, a company could designate an employee as a notary, based on his or her state-issued commission, and give this person account authorization rights to software to notarize documents for other employees. Security techniques, such as encryption and application controls, could show the authorized notary performed the notarization, include the seal data, and detect whether any unauthorized changes had occurred. Additional layers of personnel procedures and internal controls could be set to ensure usage only by authorized notaries and that the notary was physically present when the document was signed. Secure computer logs could then create archives of every event.

However, closed systems are based on highly proprietary solutions and are often not particularly scalable or interoperable, Greenwood notes. And while standards such as those by the Mortgage Industry Standards Maintenance Organization and the Public Records Industry Association can be leveraged to increase the number of parties that could theoretically join a closed system, "such private sector arrogation of the public sector role in oversight of notaries public may pose insoluble problems from a policy, legal and practical standpoint."

For a secure technology system in e-notarization, the most commonly advocated solution is Publik Key Infrastructure in which cryptographic codes and third party service providers are supposed to effect mathematically provable trust. Therefore, any information scrambled by one code can only be unscrambled by a unique corresponding code, Greenwood explains. However, the complexity, cost, slowness and security flaws are among the issues why this has not arisen as a workable option.

Another proposed secure technological approach is biometrics, which measures the physiological attributes of a person, including characteristics such as fingerprints and retina or voice patterns. Such data can be expressed as digital information and stored, according to the paper.

While the biometric component of e-notarization could fulfill the signature and authentication functions of a notarial act, and indeed "is so powerful at authenticating both the identity of the notary and that of the document signer," it can do "all but eliminate forgery when implemented securely," Greenwood said.

The paper notes that the state of Colorado has pioneered an effective solution that enables state regulation of e-notarization. The Secretary of State issues each notary an 11-digit Document Authentication Number that is public. The Secretary then records and issues to each notary confidential, multiple random numbers, which have relevant data that appears on the respective official seal, such as name, title, jurisdiction and commission expiration date. An electronic signature is constituted when the notary uses the public and confidential numbers, and the official seal data in conjunction. An e-notarization is executed when the electronic signature is then simply affixed to the electronic document.

A state-regulated system for e-notarization can offer direct accountability and certain public protections. "Yet, development of permanent technology and standards architectures governing e-notarization on a state-by-state basis, with gaps, inconsistencies and potential conflicts between them, can create significant impediments to interstate commerce and fly in the face of common sense," the author stated.

To encourage statutory uniformity between states and to discourage electronic procedures that violate basic principles of traditional notarization, the Notary Association developed and published the Model Notary Act of 2002, which "integrates paper-based and electronic procedures and contains the first comprehensive set of rules for registering electronically capable notaries and regulating their electronic acts," according to the paper.

"Eventually, harmonization of private sector approaches and public sector regulatory oversight will have to occur," Greenwood said.

Uniform laws are necessary to "ensure that consistent and harmonious national infrastructures develop" and interstate commerce is not adversely affected, he added.

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