We believe that electronic signatures are generally valid on most loan documents in Illinois, with the exception of promissory notes — special requirements apply to electronic promissory notes that are negotiable instruments.

The general rule under Illinois law is that electronic signatures have “the same force and effect under the laws of this State” as wet signatures. Like the federal ESIGN Act, Illinois’s recently enacted Uniform Electronic Transactions Act (UETA) provides that an electronic signature may not be denied legal effect or enforceability solely because it is in electronic form. The UETA also provides that an electronic record will satisfy a law requiring a record to be retained if it accurately reflects the information in the record and remains accessible for later reference. Consequently, many loan documents may be signed electronically without impacting their enforceability.

However, the UETA generally does not apply to transactions governed by Article 3 of the UCC, which includes mortgage notes that are negotiable instruments, unless the electronic copy of the note meets the enhanced criteria to be considered a “transferable record.” (Certain mortgage notes may not be treated as negotiable instruments under the UCC if they include certain undertakings and conditions outside of the payment of money or contain a conspicuous statement that they are not negotiable.)

To use electronic promissory notes (which we assume would be the case if the note is signed electronically), your bank must have access to electronic storage capabilities that would allow you to meet this enhanced criteria. For example, at least one out-of-state court has confirmed the use of Fannie Mae’s e-note system for this purpose. Your bank should check that Docusign can meet these criteria before moving forward with promissory notes that are signed electronically:

(1) a single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable; 

(2) the authoritative copy identifies the person asserting control as: (A) the person to which the transferable record was issued; or (B) if the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred; 

(3) the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian; 

(4) copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control; 

(5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and 

(6) any revision of the authoritative copy is readily identifiable as authorized or unauthorized.

Additionally, Fannie Mae and Freddie Mac have both issued guidance on their acceptance of electronic signatures on mortgage documents for loans sold to either entity, linked to below in our resources.

For resources related to our guidance, please see:

• Financial Institutions Electronic Documents and Digital Signature Act, 205 ILCS 705/10(a) (“If in the regular course of business, a financial institution possesses, records, or generates any document, representation, image, substitute check, reproduction, or combination thereof . . . that accurately reproduces, comprises, or records the agreement, transaction, act, occurrence, or event . . . [it] shall have the same force and effect under the laws of this State as one comprised, recorded, or created on paper or other tangible form by writing, typing, printing, or similar means.”)

• Electronic Signatures in Global and National Commerce (ESIGN) Act, 15 USC 7001(a)(1) (“A signature, contract, or other record . . . may not be denied legal effect, validity, or enforceability solely because it is in electronic form.”)

• Uniform Electronic Transactions Act, 815 ILCS 333/7(a) (“A record or signature may not be denied legal effect or enforceability solely because it is in electronic form.”)

• Uniform Electronic Transactions Act, 815 ILCS 333/12(a) (“If a law requires that a record be retained, the requirement is satisfied by retaining an electronic record of the information in the record which: (1) accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record or otherwise; and (2) remains accessible for later reference.”)

• Uniform Electronic Transactions Act, 815 ILCS 333/3(b) (“This Act does not apply to a transaction to the extent it is governed by: (1) a law governing the creation and execution of wills, codicils, or testamentary trusts; (2) The Uniform Commercial Code other than Sections 1-107 and 1-206, Article 2, and Article 2A.”)

• Uniform Electronic Transactions Act, 815 ILCS 333/16 (“Transferable records.
   
  • (a) In this Section, ‘transferable record’ means an electronic record that: (1) would be a note under Article 3 of the Uniform Commercial Code or a document under Article 7 of the Uniform Commercial Code if the electronic record were in writing; and (2) the issuer of the electronic record expressly has agreed is a transferable record.
     
  • (b) A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.
     
  • (c) A system satisfies subsection (b), and a person is deemed to have control of a transferable record, if the transferable record is created, stored, and assigned in such a manner that:
    • (1) a single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in paragraphs (4), (5), and (6), unalterable;
       
    • (2) the authoritative copy identifies the person asserting control as: (A) the person to which the transferable record was issued; or (B) if the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred;
       
    • (3) the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian;
       
    • (4) copies or revisions that add or change an identified assignee of the authoritative copy can be made only with the consent of the person asserting control;
       
    • (5) each copy of the authoritative copy and any copy of a copy is readily identifiable as a copy that is not the authoritative copy; and
       
    • (6) any revision of the authoritative copy is readily identifiable as authorized or unauthorized.
       
  • (d) Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in Section 1-201(20) of the Uniform Commercial Code, of the transferable record and has the same rights and defenses as a holder of an equivalent record or writing under the Uniform Commercial Code, including, if the applicable statutory requirements under Section 3-302(a), 7-501, or 9-308 of the Uniform Commercial Code are satisfied, the rights and defenses of a holder in due course, a holder to which a negotiable document of title has been duly negotiated, or a purchaser, respectively. Delivery, possession, and indorsement are not required to obtain or exercise any of the rights under this subsection.”)
     
• Uniform Electronic Transactions Act, Official Commentary, Section 16, Comment 2 (page 45) (“[N]ot only is Section 16 limited to electronic records which would qualify as negotiable promissory notes or documents if they were in writing, but the issuer of the electronic record must expressly agree that the electronic record is to be considered a transferable record. . . However, conversion of a paper note issued as such would not be possible because the issuer would not be the issuer, in such a case, of an electronic record. The purpose of such a restriction is to assure that transferable records can only be created at the time of issuance by the obligor. The possibility that a paper note might be converted to an electronic record and then intentionally destroyed, and the effect of such action, was not intended to be covered by Section 16.”)

• Illinois UCC, 810 ILCS 5/3-104(a) (“Except as provided in subsections (c) and (d), ‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of any obligor.”)

• Illinois UCC, 810 ILCS 5/3-301 (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.”)

• Illinois UCC, 810 ILCS 5/3-104(d) (“A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this Article.”)

• Fannie Mae Selling Guide, A2-4.1-03, Electronic Records, Signatures, and Transactions (06/02/2021)

• Freddie Mac Single-Family Seller Servicer Guide, 1401.9, Electronic Signatures