The foreclosure mess aside, making states recognize each one another's documents is a good idea.

The foreclosure mess aside, making states recognize each one another's documents is a good idea.

The foreclosure mess aside, making states recognize each one another's documents is a good idea.

Moneybox
Commentary about business and finance.
Oct. 12 2010 2:21 PM

Signed and Sealed

The foreclosure mess aside, making states recognize one another's documents is a good idea.

Justice Joseph Story. Click image to expand.
Justice Joseph Story

The housing industry has sunk into a morass of paperwork problems and missing documents. Some banks won't even foreclose houses anymore. Into this chaos comes President's Obama's pocket veto of a bill that might have sped up foreclosures by making it easier to verify mortgage documents in court. Called the Interstate Recognition of Notarizations Act of 2009, the bill would have forced state courts to give equal treatment to notarized documents—including mortgage documents—that were notarized out of state.

Apparently, that prospect was scary enough for the president to use his second veto ever to stop it from becoming law. And yet shoddy out-of-state documents have bedeviled America since the time of the Constitution—which tried to solve the problem, even if it didn't succeed.

In the founding era, back before typewriters and photocopiers, legal documents—like all other documents—were written by hand. Proving that those documents were authentic was a constant concern. In one early case, copies of Massachusetts statutes were introduced in court as "printed copies of the acts, with certain erasures and interlineations in writing." How could the court know that none of the handwritten "erasures and interlineations" was fake? As the defense lawyer complained,

These papers are, evidently, from the face of them, torn from some printed book. … These printed papers are not connected directly with the seal. The seal is on a distinct piece of white paper, and by a single thread these pretended acts of the legislature are connected with that. Some essential parts are again connected with those through which the thread passes by wafers. Does the seal prove these? If a thread or wafer were now to be used to connect either, or any of these sheets, with a newspaper, it would be equally well authenticated.

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To Justice Joseph Story, it was a "matter of most serious regret, [that] an exemplification so loose and irregular, should have been permitted to have found its way into any Court of justice."

Authenticating in-state documents was hard enough. But the problem was even worse when it came to documents from out of state—and that's where the Constitution came in. Before the Revolution, documents from another American colony were just as "foreign" as documents from across the ocean. Drafting up a fake decision from another colony's court could be as easy as writing it out—and if nobody knew what the Great Seal of South Carolina looked like, the only way to find out was to get on a horse. To avoid fakes, the colonies placed strict limits on when courts would give their trust—their "faith and credit"—to a different government's seal. But those limits came with a cost. Anyone sued in one colony could flee to another, which might not recognize the out-of-state judgment as real. Massachusetts complained in 1774 that because of the legal uncertainty surrounding out-of-state judgments, "honest creditors are often defrauded … by negligent and evil minded debtors." (Today, we call those debtors "struggling homeowners.")

Once independence came, the states agreed to fix the problem—first in the Articles of Confederation and then in the Constitution's Full Faith and Credit Clause:

Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records and Proceedings shall be proved, and the Effect thereof.

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That clause didn't force states to recognize every out-of-state document. Instead, it let Congress decide how to verify official documents from other states. Congress has only exercised its power a few times—for example, to deny recognition to gay marriages through the Defense of Marriage Act. Today, federal law provides a specific means of authenticating state laws, judicial and executive records, and certain child support and protective orders, requiring that other states give the copies "the same full faith and credit" that the originals get at home.

For most everything else—like the public notary's seal on a mortgage affidavit—each state can decide which documents to recognize and which to ignore. Some states, like California, are more willing to believe the seals and signatures of other states' notaries. But others won't. After all, as one commentator put it, "how does a state court in Florida know what a proper Alaska or Hawaii or Vermont notarization looks like?" They don't.

Still, it's not a bad idea for states to give equal treatment to one another's notaries—so long as Congress tells them what to look for. Courts rely on notaries' seals to prove that the signature on a document is genuine. No one knows where a document might one day end up in court, and the signer can't always fly there to get a seal of approval from an in-state notary. The current onslaught of foreclosures has exacerbated the problem but didn't invent it: The vetoed bill wasn't aimed at the housing crisis. It was introduced back in 2005 and passed the House with bipartisan support in December 2006.

Critics of the bill say that some notaries are negligent or worse in witnessing signatures on mortgage affidavits, or in using electronic notarizations that they say aren't as secure. If that's the problem, Congress should provide standardized criteria that every state's notaries must meet to get recognition elsewhere. After all, if notaries aren't doing their jobs—or if the affidavits themselves are filled with lies—then whether a state uses ink seals or embossed seals won't matter. But that's the kind of difference that can keep a crucial document out of court. Preventing fraud is a good thing, but throwing another wrench into the judicial system is not.

According to the Supreme Court, the purpose of the Full Faith and Credit Clause is "to alter the status of the several states as independent foreign sovereignties" and "to make them integral parts of a single nation." Even if it's not in the interests of some homeowners right now, that's still the larger goal.

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