Important Updates in the Illinois Notary Law

Lake County Bar Association Real Estate and Wills, Trusts, and Probate Seminar April 17, 2009 A. Carrie Lincoln Law Office of Elizabeth M. Rochford, P.C. 4760 W. Devon Ave. Lincolnwood, IL 60712 (847) 679-9993 (847) 676-4103 ac_Lincoln@sbcglobal.net Effective June 1, 2009, every Illinois notary must create a Notarial Record for each notarial act performed in connection with a document of conveyance involving Cook County residential property. 5 ILCS 312/3-102. The full text of the amendment is attached to these materials as Exhibit A. This seems like a straightforward amendment, however as the Act is analyzed and reviewed, more and more obligations are put on the notary in order to comply with the new law. While those who practice in Lake County may wonder why this new amendment interests them, it is important to note that the legislature looks at this as a pilot program and may see the need to expand the program in the future. The Cook County States Attorneys office lobbied for the amendment, primarily to be used as a tool in investigations after a fraud has occurred. Depending on the effectiveness of the amendment in Cook County, pressure may build for this fraud prevention tool to be implemented elsewhere. Property Subject to the Amendment. Evaluating the amendment section by section, the notary first must determine if the document he is being asked to notarize is a document of conveyance. The Act defines a document of conveyance as a written instrument that transfers or purports to

transfer title effecting a change in ownership to residential real property located in Cook County. Exceptions to the definition apply, including a.) Court-ordered and court-authorized conveyances such as quit-claim deeds executed pursuant to a marital settlement and transfers in the administration of a probate estate; b.) Judicial sale deeds including deeds issued pursuant to proceedings to foreclose a mortgage or execute on a levy to enforce a judgment; c.) Deeds transferring ownership to a trust where the beneficiary is also the grantor, d.) Deeds from grantors to themselves that are intended to change the nature or type of tenancy by which they own residential real property; e.) deeds from a grantor to the grantor and another natural person that are intended to establish a tenancy by which the grantor and the other natural person own residential real property; f.) Deeds executed to the mortgagee in lieu of foreclosure of a mortgage; g.) Deeds transferring ownership to a revocable or irrevocable grantor trust where the beneficiary includes the grantor. For purposes of the amendment, residential real property is defined as a building or buildings in Cook County containing one to four (1-4) units or an individual condominium unit. Commercial property and apartment buildings with more than four units are not be included in the act. Notarial Record. As the amendment states, the notary must now create a Notarial Record for each notarial act. This means that for each signature on a deed in a residential real estate 2

sales transaction a Notarial Record must be created. What is a Notarial Record exactly? Per the requirements of the Act, the notarial record must identify that the conveyed property is subject to the Act, state the Grantor/Signers name and signature, Grantor/Signers residential address, the name or type of document of conveyance, the common street address and PIN of the conveyed property, a thumbprint or fingerprint of the signer, the identification items used to identify the signer, the name of the notary who notarized the conveyance instrument, the notarys phone number, commission expiration, residential street address of notary, name of the notarys employer, the business address of the employer, and what fee was charged to perform the notarization, if any. The notary can also provide any additional comments on the Notarial Record, though the amendment doesnt specify what type of additional comments would be pertinent. An example form of the Notarial Record is attached as Exhibit B. The law now defines what is acceptable identification to identify the signer. The notary needs to have satisfactory evidence to identify the person whose signature is to be notarized. Section 312/6-102(d)(3) states that identification documents to establish satisfactory evidence are documents that are valid at the time of the notarial act, issued by a state or federal government agency, and bearing the photographic image of the individuals face and signature of the individual. Library cards, gym membership passes and credit cards with photographs are not acceptable forms of identification under the act. This description of satisfactory identification is only in effect until July 1, 2013. One benefit to the new amendment is that notaries may now charge up to $25.00 for notarization of a document of conveyance. Many of the title companies in Cook County have indicated their intent to charge the $25 fee for any notarizations that a title

company employee performs. As the National Notary Association describes it, a notary will now have the opportunity to collect a fee up to $25.00 for notarial acts that require the notarial record. Retention of the Notarial Record. Now that the notary has notarized the deed and created the Notarial Record, what does he do with it? According to 5 ILCS 312/3-102(d), if the notary is a principal, employee, or agent of a Title Insurance Company, Title Insurance Agent, Financial Institution, or attorney at law, the notary shall deliver the original Notarial Record to the notarys employer or principal within fourteen (14) days after the performance of the notarial act for retention for a period of seven (7) years For paralegals and other administrative staff in law offices who notarize real estate closing documents, this section is pretty clear that as an employee they must provide the original record to their employer. Attorneys must also keep each notarial record with other business records for seven years as part of the statute. But who is included in the term title insurance agent? Most if not all residential real estate attorneys in the Chicago area are agents of a title company for purposes of preparing a title commitment. Do these title agents now have to provide the original notarial record to the title company closing the transaction? Are they required to keep the original as part of the business records but provide a copy to the title company of which they are an agent? The act does not specify how this situation should be resolved, however, at a recent Chicago Title seminar on this topic, underwriters for Chicago Title indicated that they will not be collecting notarial records for their attorney agents, nor will they be policing files for compliance. If the notary is not an employee of one of the stated entities in the act, such as a real estate broker who also is a notary, then the original notarial record shall be filed with the Cook County Recorder of Deeds for retention for

seven (7) years and a filing fee of $5. Presumably, the majority of the applicable documents of conveyance will be prepared and notarized within a law office and the original notarial record will be kept with the law office business records. Some notaries have expressed concern, however, about the amount of information that is provided on the notarial record and how the recorder of deeds will be able to keep that information confidential. The recorders office has issued a statement regarding implementation of the new law and added that the office has created additional security measures to maintain the privacy and confidentiality of the notaries. The statute continues to state, no copies of the original notarial record may be made or retained by the notary. Retention of the notarial records must be kept confidential and secure. If security of the retained notarial records is breached, the attorney or entity holding the records must contact the signer in the most expedient time possible to notify him of the security breach and the unauthorized access of the fingerprint data. 5 ILCS 312/3-102(j). Just as orphaned original last wills must be kept by an acquiring law firm or attorney, the notarial record must also be kept for seven years from the notarization by an acquiring firm or attorney. Those attorney-notaries who retire or otherwise terminate their practices without a successor must turn over the notarial records to the Recorder of Deeds office, likely with the $5 fee attached to each record that is filed. For a paper-less society, this amendment creates at least one more piece of paper per transaction that must be kept as a business record for at least seven years, and be managed even after the creator of the document retires, or decides its impractical to continue practicing in the area of residential real estate transactions.

Compliance with the New Law. Compliance with the act is discussed in section 312/3-102(h). If a notary does not comply with creating the notarial record, the validity of the conveyance will not be affected, in the absence of fraud. If a client refuses to comply with the thumbprint on the notarial record the closing can still occur. The notary should still make the notarial record with all other information and include a statement that the grantor/signer refused to make the thumbprint record. For a recognizable client who has worked with the attorney and the notarizing firm for many years, refusing to make the thumbprint record would probably not create a significant complication. In the situation where the attorney or the notary within the law office is working with a new client who the attorney has not known for very long and was not referred from a reliable third-party, then a grantor/signers refusal to make the notarial record might indicate more suspicious circumstances are involved in the transaction. Nothing in the act requires the notary to take action if the signer refuses to make a thumbprint, however, the provisions of the notarys surety bond may require action. While compliance with the requirements of the act for all clients and all documents of conveyance could be viewed as cumbersome, using a standard procedure for all clients would likely prevent the notarizing attorney or law office from unwittingly participating in a fraudulent conveyance. Compliance with the amendment provisions appears to be entirely voluntary. Keeping in mind the purpose behind the legislation may encourage notaries to be diligent in preparing the notarial record. As mentioned earlier, the Cook County States Attorneys Office proposed the legislation to be an effective tool in fraud investigations. Since the notarial record can be subpoenaed, it would be in the best interests of the notary to comply with the requirements in preparing the notarial 6

record in the unfortunate event that the notarization eventually becomes the subject of litigation. Litigation Involving the Validity of a Notarization and Creating Liability for Invalid Notarizations. In December 2008, the First District Appellate Court of Illinois decided the case Vancura v. Katris, (No. 1-06-2750), imposing liability on employer Kinkos for its employees notarization of a forged signature on a mortgage assignment. It was a case of first impression regarding employers liability under the Act for a notarys official misconduct. (No. 1-06-2750 citing 5 ILCS 312/7-102). The facts of the case involved several real estate developers and a few business transactions. Plaintiff Richard P. Vancura loaned defendant Glenn S. Brown $100,000.00 in November 1994 to purchase a residential property in Wheaton and hold in a land trust. The land trust executed an installment note and Brown executed a personal guarantee that the installment loan terms would be performed. In May 1995, Brown defaulted on the note and Vancura frequently contacted Brown to try to collect on the note. Both the plaintiff and defendant Brown contacted a mutual acquaintance and real estate developer Randall Boatwright for suggestions to help sell the property. In December 1995, Boatwrights business partner (who is not involved in the litigation and never testified in the trial) told Boatwright that the plaintiff was willing to trade the installment note at a discount for a percentage ownership of a private business that Boatwright owned. Boatwright contacted defendant Brown with the offer to discount the debt, who contacted his friend (and soon to be co-defendant) Peter Katris to provide Brown

with the $90,000.00 to payoff the discounted debt. Brown contacted an attorney to conduct a real estate closing for Boatwright to purchase Vancuras interest in the installment note. The attorney prepared an assignment of mortgage to be signed by Vancura, which some how defendant Boatwright took possession of an unexecuted copy prior to closing. Boatwright testified that he and his partner then went to Vancura to obtain his signature on the assignment. On the day of closing, Boatwright and his business partner went to Kinkos in Oak Lawn to have some of the documents notarized. It was undisputed that Vancura was not at the Kinkos, that he never appeared before the notary on duty at the Kinkos, and that Vancura never signed the assignment of mortgage, but Boatwright and his partner left the Kinkos that day with two documents notarized by Kinkos employee, Gustavo Albear. In February 1996 Vancura became aware of the sale of the debt at which point he filed suit against the notary, Brown, Boartwright, and Kinkos. The lengthy appellate court opinion detailed the trial courts focus on how the assignment of mortgage was notarized at the Kinkos, reviewed the training process that Kinkos provided its employees who are also notary publics, analyzed how the notary in question identified the individual signing the document to be notarized, and evaluated the expert opinion the plaintiff offered at trial. The trial was held approximately ten years after the notarization and closing took place so many physical items of evidence were not preserved for trial. The notary, Albear, testified that Kinkos trained its employees who were commissioned notary publics, though his testimony conflicted with the testimony

of the Kinkos trainer. The notary indicated that it was his practice to notarize documents if the individual in front of him swore they are the person they say they are and if the identification document provided such as a license or even a library card had a signature that matched the signature on the document to be notarized. Kinkos employee-trainer testified that the employee notaries were instructed to request an identification document with a photograph in order to verify the identity of the signer. No clear explanation was ever reached as to how the assignment of mortgage document in question was ultimately notarized; either the notary signed it even though Vancura was not present or defendant Boatwright or his business partner used the stamp and forged the signature of the notary. The plaintiff offered the expert testimony of Professor Michael L. Closen, an attorney, notary public, and expert on notary practice and notary law, who testified that Kinkos training and supervision of Albear (the notary) concerning the identification of document signers was insufficient. A large portion of the opinion focused on the testimony of the notary expert. Professor Closen reviewed the Illinois statute that was in effect at the time of the notarization as well as the 2002 Model Notary Act, which was not law in effect in Illinois at the time. The expert acknowledged Kinkos was not statutorily required to have a supervisor on duty whom Albear could consult if he had a problem doing a notarization. No. 1-06-2750 at pg. 18. Ultimately, the trial judge found Kinkos liable on the basis of section 7-102 of the Act (5 ILCS 312/7-102) and on the basis of the common law theory of negligent supervision. The appellate court however vacated the statutory judgment but

affirmed the common law theory of negligence of training and negligence of supervision judgment. Statutory Liability of Employer. Section 7-102. Liability of Employer of Notary. The employer of a notary public is also liable to the persons involved for all damages caused by the notarys official misconduct, if: (a) the notary public was acting within the scope of the notarys employment at the time the notary engaged in the official misconduct; and (b) the employer consented to the notary publics official misconduct. The trial court evaluated whether Kinkos provided actual consent or implied consent of the notarys misconduct. The trial court determined that Kinkos gave implied consent for the notarys misconduct however the appellate court analyzed the statute to determine that implied consent required that Kinkos knew of at least one prior improper notarization before the forged signature document notarized at issue. In this instance, consent of the misconduct was not found; however, this case puts employers of notaries on notice that statutory liability for an employee-notarys misconduct can be implied through even one prior improper notarization. The amendment to the Notary Act, as well as the holding of the case should encourage all notaries, especially employers of notaries to conduct periodic supervision of employee notarization and ensure that employeenotaries receive continual training on the requirements of the Act. The trial court also found Kinkos liable on a theory of negligent supervision and training. Because the document was notarized, Kinkos acknowledged that either their employee notarized the assignment of mortgage even though Vancura (the name on the document) did not personally appear in front of the notary or the notary negligently or intentionally permitted Boatwrights business partner to apply the notary stamp to the document. Either way, Albear engaged in official misconduct. The appellate court 10

focused on the theory of direct liability from Kinkos negligent training and supervision. Professor Closen testified as an expert in the area of notary practice that training should include sound notary practices. Closen turned to a National Notary Association training publication to describe sound notary practices such as identifying a signer using two pieces of identification, preferably with a photograph and a physical description to match the signer in front of the notary, maintaining a notary logbook, and keeping the notary stamp in a secure location. The Kinkos trainer testified that he based his training sessions on the information presented in the Illinois Secretary of States Notary Public Handbook. While a notary logbook is not required under the Illinois statute, Professor Closen stressed that in his opinion a logbook should be kept of each notarial act, and that the logbook should be kept in a secure place. The notary at Kinkos testified that his seal and notary logbook were kept at the store in the managers office, but not necessarily in a locked or secured office. The logbook was not available at the time of trial; the notary testified that he transferred his stamp and logbook to his supervisor when he relocated from the Oak Lawn Kinkos location. Based on the testimony of the trainer regarding his training sessions and his acknowledgment that he did not grade the employee-notarys workbooks, nor test their knowledge following training, the trial court found and the appellate court affirmed that Kinkos was negligent in its training of its employee-notary. The notarys store manager testified regarding his supervision of Albear; admitting that he did not supervise any notarizations and was not aware of any of the procedures or requirements involved in the notarial act. Ironically, the store manager admitted he was not interested in becoming a notary because he was not willing to take on the personal

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liability of a notary public. The trial court found that Kinkos lack of supervision of its notary-employees was unreasonable. The appellate court affirmed the decision of the trial court, concluding that while Kinkos had no statutory duty to train its notary employees, it chose to do so and showed no concern for whether its instruction did actually imbue its employees with their duties under Illinois law. Justice OMalley dissented from the majority opinion with regard to the common law theory of negligent training and supervision. The dissent was upset on how much the majority opinion focused on Professor Closens expert testimony. Justice OMalley declared that the testimony of the expert was inadmissible because the experts testimony was attempting to define the term satisfactory evidence which appeared in the statute, however the experts testimony ultimately criticized rather than defined the Illinois Notary Act. The expert defined the satisfactory evidence in terms of the requirements described in the 2002 Model Notary Act, however, it was not Illinois law at the time, and as the dissent points out, the Model Act was specifically rejected by the legislature. No. 0-06-2750 at page 54. Justice OMalley recognized that the Illinois statute does not require a log book to be kept nor does it require a thumbprint to prevent forged signatures and even went so far as to indicate that those might be exaggerated requirements. Perhaps the legislature read the dissent more intently than it read the majority opinion when drafting the new amendment. Summary. A lot of attention will be given to this case and the liability it imposes on employers. Had the requirements of the amendment been in place at the time the notarial act in question occurred, the amendment would not have prevented this fraud. The document in question was an assignment of mortgage, not a document of conveyance and 12

so would not apply under the amendment. The property in question was in DuPage County, not Cook. While a thumbprint record would have helped in this case to determine who actually forged the document, the notarys misconduct would likely still have occurred. The business partner who undoubtedly participated in the forgery was never added as a party to the litigation, so it is hard to know if the provisions of the amendment would have assisted this plaintiff in his fraud investigation after the fact. The amendment to the notary act only will be effective June 1, 2009 through July 1, 2013. As Vancura illustrates, not all actions of fraud and forgery will be prevented by these additional requirements. The changes in the law advocate additional training for a notary employee, otherwise, the employer must recognize that any improper notarization could bring liability. While the amendment does create several exceptions to the documents of conveyance, most individuals who are intent on committing fraud could create a situation to take advantage of one of the excepted conveyances. As implementation of the amendment continues, many positive and negative aspects of the amendment will be evident. It is possible that the thumbprint requirement will be permanently adopted throughout the State, as it is a requirement in the Model Notary Act and is a requirement in other states already. As the dissent in Vancura indicates, some will view the thumbprint, or potentially retinal scans, as overreaching requirements, but to the affected homeowner defrauded from her property, a thumbprint record seems like the least a notary could do.

NOTE: Chicago Title provided the sample Notarial Record attached as Exhibit B. Additional information regarding the new law in Illinois can be found at the National Notary Associations website, (www.nationalnotary.org) as well as to purchase an inkless thumbprint kit.

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