COVID-19 Emergency Powers: MI Supreme Court Places Many Remotely Notarized Mortgage Loans at Risk

COVID-19 Update

A recent ruling by the Michigan Supreme Court nullifying hundreds of emergency orders by Michigan Governor Gretchen Whitmer may have profound implications for those mortgage loans closed in reliance on the expanded remote notarization provisions established by emergency order, including with respect to remote ink-signed notarizations. We explain below.

What Happened

Michigan already has a remote notarization law. See Michigan Law on Notarial Acts, MCL 55.261 et seq. But it has limitations. The COVID-19 pandemic has led numerous states to enact emergency legislation, and many state governors (Michigan’s included) to issue emergency orders, to mitigate the impacts of the pandemic on everyday life. Now, Michigan’s highest court has wreaked collective havoc on the emergency orders by striking all of them. The impact on the enforceability of residential mortgages employing certain kinds of remote notarization? Depending on how the order is read by future courts, it could be significant, because remote notarization is one of the areas expanded by emergency order.   

On March 10, 2020, the Michigan Department of Health and Human Services identified the first two presumptive-positive cases of COVID-19 in Michigan. On that same day, Governor Whitmer issued Executive Order 2020-4, declaring a state of emergency. After a series of court challenges, on June 18, 2020, the Governor issued Executive Order 2020-127, again finding that the COVID-19 pandemic constitutes a disaster and emergency throughout the state of Michigan, and attempted to fix issues raised by the court orders. Recognizing the ongoing litigation, the Governor also purported to “invoke the [Michigan] Emergency Management Act as a basis for executive action to combat the spread of COVID-19 and mitigate the effects of this emergency on the people of Michigan, with the intent to preserve the rights and protections provided by the EMA.”

Under Executive Order 2020-41, the Governor issued an emergency order, “Encouraging the use of electronic signatures and remote notarization, witnessing, and visitation during the COVID-19 pandemic,” which, among other things, suspended the Uniform Electronic Transactions Act “to the extent necessary to permit the use of an electronic signature for a transaction whenever a signature is required under Michigan law, unless the law specifically mandates a physical signature.” The order provided, for example, that “a signature will not be denied legal effect or enforceability solely because it is in electronic form and if a law requires a signature, an electronic signature satisfies the law.” Further, the order (1) permitted “each state department to send and accept electronic records and electronic signatures to and from other persons without a determination from or approval by the Department of Technology, Management and Budget”; (2) suspended any requirement that “a notary … be in the physical presence of an individual seeking the notary’s services or of any required witnesses”; and (3) encouraged “[p]ersons and entities engaged in transactions … to use electronic records and electronic signatures and, when a notarized signature is mandated by law, to use a remote electronic notary pursuant to the Michigan Law on Notarial Acts.” Critical here, the order then set forth detailed conditions for a valid remote notarization using two-way real-time audiovisual technology. If these conditions were satisfied, Michigan (ordered the Governor) would accept the remote signatures as valid. 

While Order 2020-41 expired by its terms on May 6, 2020, it was then replaced by an expanded version, Executive Order 2020-74, and thereafter with Executive Orders 2020-131, 2020-158, 2020-173 and 2020-187, the last of which was due to expire on October 30, 2020.

Of importance here, the Executive Orders relaxed some of the existing requirements for a valid remote notarization under the Michigan Law on Notarial Acts. For example, the orders allowed a hybrid procedure sometimes called “remote ink-signed notarization” (RIN), allowing notaries to take acknowledgments remotely by witnessing the signature of an individual using audiovisual communication and thereafter performing the notarial act on a tangible record. Order 2020-41 also, along with making other expansions, relaxed the requirement that only approved vendor systems could be used to perform a remote notarization.

The Ruling

On October 2, 2020, the Michigan Supreme Court issued an order in In re Midwest Institute of Health, PLLC v. Governor on a question certified to the court by a federal district judge in proceedings pending in the U.S. District Court, Western District of Michigan. That order, written in a series of concurring opinions, had the overall effect of nullifying each and every emergency order issued by Governor Whitmer.

Thereafter, on October 12, 2020, the same Supreme Court denied a motion that sought to delay enforcement of the order, deeming the ruling as one having immediate precedential effect, and likewise issued its order in House of Representatives and Senate v. Governor (No. 16197), adopting the ruling from October 2. Critical here, the court found the act authorizing the Governor to issue executive orders “is incompatible with the Constitution of our state, and therefore, executive orders issued under that act are of no continuing legal effect.”

If it is true that the orders have no continuing legal effect, the implication is clear that they were of legal effect until the date of the ruling. If so, then the impact on RIN may be minimal, and lenders can point to this order to argue that the orders were legally in effect until October 12. On the other hand, borrowers will argue that the expansions were inconsistent with existing statute and that the broad sweep of the order renders such expansion impermissible.

The issue carried into a dissenting opinion from the October 12 denial, where one judge (Bernstein) wrote as follows: “I agree with defendants that a delay here could only allow the Governor and the Legislature the time to better prepare for an appropriate transition. … Although I note Chief Justice MCCORMACK’s concern that there is no precedential effect to be stayed here, I would have preferred to delay the precedential effect of this Court’s opinion both here and in House of Representatives v. Governor, … in order to prevent confusion and to ensure that the Governor and the Legislature have an adequate amount of time to coordinate their efforts and guard against such unintended consequences.”

Why It Matters

Hundreds, if not thousands, of mortgages have been recorded in Michigan since the start of the pandemic, many employing notarization processes approved by the nullified Executive Orders, and have been thereafter accepted for filing by county recorders. Many may have been recorded using RIN or other procedures that were approved by order but not part of the statute itself.

To preserve the use of RIN and other expansions of the law, the Michigan Legislature needs to move quickly to ensure the validity of mortgages recorded under the expanded procedures. Although such a reading is likely strained, borrowers and their lawyers will doubtless argue that mortgages submitted for recording in reliance on the emergency orders are somehow void, and lenders will doubtless be considering various potential fixes to avoid this otherwise likely line of collateral attack. Manatt is advising its clients on these issues and is available to discuss these issues with clients who are facing this concern.

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