[Federal Register Volume 67, Number 221 (Friday, November 15, 2002)]
[Notices]
[Pages 69201-69204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29025]


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DEPARTMENT OF COMMERCE

National Telecommunications and Information Administration

[Docket No. 010222048-2243-05]


The Housing Foreclosure, Repossession, and Default Notices 
Exception to the Electronic Signatures in Global and National Commerce 
Act

AGENCY:  National Telecommunications and Information Administration 
(NTIA), U.S. Department of Commerce

ACTION:  Notice, Request For Comments

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SUMMARY: Section 101 of the Electronic Signatures in Global and 
National Commerce Act, Pub. L. 106-229, codified at 15 U.S.C. 7001 et 
seq. (``ESIGN'' or ``the Act''), preserves the legal effect, validity, 
and enforceability of signatures and contracts relating to electronic 
transactions and electronic signatures used in the formation of 
electronic contracts. 15 U.S.C. 7001(a). Section 103 (a) and (b) of the 
Act, however, provides that the provisions of section 101 do not apply 
to contracts and records governed by statutes and regulations regarding 
probate and domestic law matters; state commercial law; consumer law 
covering utility services, residential property foreclosures and 
defaults, and insurance benefits; product recall notices; and hazardous 
materials papers. 15 U.S.C. 7003(a),(b). Section 103 of the Act also 
requires the Secretary of Commerce, through the Assistant Secretary for 
Communications and Information, to review the operation of these 
exceptions to evaluate whether they continue to be necessary for 
consumer protection, and to make recommendations to Congress based on 
this evaluation. 15 U.S.C. 7003(c)(1). This Notice is intended to 
solicit comments from interested parties to provide information for 
this evaluation, specifically on the ESIGN exception for notices that 
communicate information regarding the primary residence of an 
individual concerning default, acceleration, repossession, foreclosure, 
eviction, and the right to cure (hereinafter referred to as 
``residential default, foreclosure, and eviction notices''). See 15 
U.S.C. 7003(b)(2)(B).

DATES: Written comments and papers are requested to be submitted on or 
before [sixty (60) days after publication in the Federal Register].

ADDRESSES: Written comments should be submitted to Josephine Scarlett, 
Senior Attorney, National Telecommunications and Information 
Administration, 14th Street and Constitution Avenue, NW., Washington, 
DC 20230. Paper submissions should include a 3 and one-half inch 
computer diskette in HTML, ASCII, Word, or WordPerfect format (please 
specify version). Diskettes should be labeled with the name and 
organizational affiliation of the filer, and the name of the word 
processing program used to create the document. In the alternative, 
comments may be submitted electronically to the following electronic 
mail address: [email protected]. Comments submitted via 
electronic mail also should be submitted in one or more of the formats 
specified above.

FOR FURTHER INFORMATION CONTACT: For questions about this request for 
comment, contact: Josephine Scarlett, Attorney, Office of the Chief 
Counsel, NTIA, 14th Street and Constitution Avenue, NW., Washington, DC 
20230, telephone (202) 482-1816 or electronic mail: 
[email protected]. Media inquiries should be directed to the 
Office of Public Affairs, National Telecommunications and Information 
Administration, at (202) 482-7002.

SUPPLEMENTARY INFORMATION:

Background: Electronic Signatures in Global and National Commerce Act

    Congress enacted the Electronic Signatures in Global and National 
Commerce Act, Pub. L. 106-229, 114 Stat. 464 (2000), to facilitate the 
use of electronic records and signatures in interstate and foreign 
commerce and to remove uncertainty about the validity of contracts 
entered into electronically. Section 101 requires, among other things, 
that electronic signatures, contracts, and records be given legal 
effect, validity, and enforceability. Sections 103(a) and (b) of the 
Act provides that the requirements of section 101 shall not apply to 
contracts and records governed by statutes and regulations regarding: 
probate and domestic law matters; state commercial law; consumer law 
covering utility services, residential property default, foreclosure, 
and eviction notices, and insurance benefits; product recall notices; 
and hazardous materials papers.

[[Page 69202]]

    The statutory language providing for an exception to section 101 of 
ESIGN for notices of default, acceleration, repossession, foreclosure 
or eviction for a primary residence of an individual is found in 
section 103(b)(2)(B) of the Act:

Sec. 103. [15 U.S.C. 7003] Specific Exceptions.

    (b) Additional Exceptions.--The provisions of section 101 shall not 
apply to
    * * * *
    (2) any notice of--
    * * * *
    (B) default, acceleration, repossession, foreclosure, or eviction, 
or the right to cure, under a credit agreement secured by, or a rental 
agreement for, a primary residence of an individual;
    * * * *
    The statutory language requiring the Assistant Secretary for 
Communications and Information to submit a report to Congress on the 
results of the evaluation of the section 103 exceptions to the ESIGN 
Act is found in section 103(c)(1) of the Act as set forth below.

(c) Review of Exceptions.--

    (1) Evaluation required.-- The Secretary of Commerce, acting 
through the Assistant Secretary for Communications and Information, 
shall review the operation of the exceptions in subsections (a) and (b) 
to evaluate, over a period of 3 years, whether such exceptions continue 
to be necessary for the protection of consumers. Within 3 years after 
the date of enactment of this Act, the Assistant Secretary shall submit 
a report to Congress on the results of such evaluation.

Housing Default, Acceleration, Repossession, Foreclosure, Eviction and 
Right to Cure Regulations

    The ESIGN exception for residential default, foreclosure, and 
eviction notices prohibits creditors from sending electronic documents 
or information to consumers as notice of an impending foreclosure or 
eviction. Residential default, foreclosure, and eviction notices 
forwarded to consumers in electronic format are not required to be 
accorded legal validity and effect. Federal and state regulations 
governing foreclosures and evictions require that the creditors or 
landlords give consumer mortgagors and tenants written notice of 
default, foreclosure and eviction and that the notice be sent by 
certified or registered mail prior to action by the mortgagee or 
landlord to recover possession of the property. The regulations 
discussed herein are representative of the types of residential, 
default, foreclosure, and eviction notice requirements that are covered 
by the ESIGN exception and are not intended to provide an exhaustive 
list of the existing statutory requirements governing housing default, 
foreclosure, and eviction notice under federal and state law.
    The Department of Agriculture (USDA), the Federal Reserve Board 
(Board), the Department of Housing and Urban Development (HUD), the 
Department of Treasury (DOT), and the Department of Veteran's Affairs 
(VA) have federal regulatory oversight over the housing and mortgage 
industry and, more specifically, over single family mortgage loans and 
programs that guarantee or secure funding for housing. These 
regulations and laws govern the type of notice and the manner of 
service that mortgage companies, banks, and other lenders are required 
to provide consumers prior to taking action to foreclose on residential 
properties or to evict a tenant. The states have concurrent 
jurisdiction in these areas and, thus, also have laws that govern 
residential foreclosure proceedings and tenant eviction processes. 
Section 104 of ESIGN allows federal and state regulatory agencies that 
are responsible for rulemaking under any other statute to interpret the 
consumer provisions of ESIGN through interpretive rules, orders, and 
regulations. See 15 U.S.C.7004(b)(1).
    The Farm Credit Administration (FCA) of the USDA has created new 
rules and amended others to remove regulatory barriers to electronic 
commerce for Farm Credit System institutions and their customers. 67 FR 
16627, 16628 (2002); see also 12 CFR 609.910. FCA recognized the ESIGN 
exception for residential default, foreclosure, and eviction notices 
and concluded that some of its system institutions cannot use 
electronic notification to deliver some of the notices required under 
part 614 of the rules. See id. at 16632. These rules provide that a 
lender ``shall provide written notice to the borrower that the loan may 
be suitable for restructuring'' not later than 45 days before the 
lender begins foreclosure proceedings. See 12 CFR 614.4516, 614.4519.
    Similarly, the notice rules of the Office of Thrift Supervision 
require a creditor to provide written notice by registered or certified 
mail with return receipt requested no later than 30 days before the 
creditor acts to foreclose or accelerate payments on a federally 
related loan or mortgage. See 12 CFR 590.4(h). The foreclosure rules of 
the Department of Veteran's Affairs require the Department to provide 
borrowers with certain written information regarding the alternatives 
to foreclosure after receiving notice of default from the holder of a 
note on a loan guaranteed by the Department. See 38 U.S.C. 3732.
    The Federal Reserve Board (Board) and Department of Treasury (DOT) 
have revised their regulations to authorize the electronic delivery of 
disclosures regarding certain home mortgages consistent with the ESIGN 
Act. In March, 2001, the Federal Reserve amended Regulation Z, 12 CFR 
part 226, in response to the ESIGN Act. See 66 FR 17329 (2001). 
Regulation Z implements the Truth in Lending Act, 15 U.S.C. section 
1601 et seq., and requires that creditors make certain written 
disclosures to consumers about the terms and cost of credit before the 
transaction is consummated. The Board interpreted ESIGN as containing 
special rules for use of electronic disclosures that may be provided 
only if the consumer affirmatively consents after receiving certain 
information. Id. at 17330. The amendment to Regulation Z allows 
depository institutions, creditors, lessors and others to provide 
information to consumers regarding financial transactions if the 
disclosures are clear and conspicuous and the creditor complies with 
the consumer consent provisions of section 101(c) of ESIGN. Id. at 
17334. Specifically regarding notices relating to the primary residence 
of an individual, the Board amended its rules to permit a creditor to 
provide a single rescission notice by electronic communication to each 
consumer with an ownership interest in a dwelling who has affirmatively 
assented to electronic delivery of the notice. Id. at 17332, 17333; see 
also, 12 U.S.C. 226.15(b)(1) and 226.23.
    The Board also amended Regulation B, to allow for electronic 
disclosure of information required by the Equal Credit Opportunity Act 
(ECOA), 15 U.S.C. section 1691 et seq. See 66 FR 17779 (2001). ECOA 
prohibits discrimination by a creditor in any aspect of a credit 
transaction on the basis of sex, race, color, religion, national 
origin, marital status, age, receipt of public assistance, or good 
faith reliance on provisions of the Consumer Credit Protection Act. 12 
CFR part 202. Regulation B provides guidance on the timing and delivery 
of written disclosures required by ECOA. The Board's amendment of 
Regulation B requires that creditors comply with the consumer consent 
provisions of section 101(c) of ESIGN when making disclosures 
electronically by e-mail or through website postings. See 12 CFR 
202.17(b). Recently, the Department of the Treasury's Office of the 
Comptroller of the Currency (OCC) also amended its

[[Page 69203]]

regulations, adding Subpart E, to facilitate the ability of national 
banks to conduct business using electronic technologies. See 67 FR 
34992 (May 17, 2002); 12 CFR 7.5000 et seq.
    The regulations of the Department of Housing and Urban Development 
(HUD) contain several requirements for residential default, 
foreclosure, and eviction notices to be provided to consumers of 
multifamily and single family housing.\1\ HUD insures mortgages secured 
by multifamily housing projects under the National Housing Act. 
Mortgagees are required to notify HUD of a default on a HUD-insured 
loan within 30 days of the date of the initial event of default. See 
HUD Handbook 4350.4, Table 2, Default Dates and Deadlines. The 
procedures for nonjudicial foreclosure of multifamily properties are 
set forth in the Multifamily Mortgage Foreclosure Act of 1981. See 12 
U.S.C. 3701 et seq. For these mortgages, HUD's foreclosure commissioner 
must serve notice of default and foreclosure by certified or registered 
mail, postage prepaid and return receipt requested to the owners, 
mortgagors, dwelling units, and other lienholders not less than 21 days 
prior to the foreclosure sale. See 12 U.S.C. 3708; see also, 24 CFR 
27.15(a). Notice must be served by mail, publication, or posting on the 
secured property. Id. Notices under this section are deemed duly given 
upon mailing, regardless of whether the addressee actually receives the 
letter. Id. HUD's regulations do allow, under limited circumstances, 
the electronic transmission of information for some mortgage defaults 
and foreclosures. The lenders or mortgagees that hold multifamily 
housing mortgages insured or coinsured by HUD are allowed to fulfill 
reporting requirements for mortgage defaults and delinquencies by 
electronically submitting the information to HUD. 24 CFR 200.120.
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    \1\ This notice is not an interpretive statement of the 
applicability of ESIGN's provisions to HUD's multifamily and single 
family housing regulations, but is designed to provide information 
regarding the type of residential default, foreclosure, and eviction 
notices that may be issued to consumers pursuant to HUD's rules and 
regulations. As noted above regarding the Fedral Reserve Board and 
the Farm Credit Administration's regulations, federal agencies may 
issue regulations and rulings to interpret the application of 
ESIGN's provisions on the specific statutes under their purview.
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    HUD's Office of the Assistant Secretary for Housing also oversees 
the requirements for and the manner of eviction notices given to 
tenants of subsidized housing and HUD-owned projects. The regulations 
provide that a landlord's determination to terminate a tenancy must be 
in writing and served on the tenant by first class mail or hand-
delivery to an adult person at the residence no earlier than 30 days 
prior to the termination of the tenancy. See HUD Handbook 4350.3, 
Chapter 4, No. 4-21; 24 CFR 247.4.
    HUD provides rental assistance for low income families under the 
public housing program, various Section 8 project-based assistance 
programs, and the section 8 tenant-based voucher program. Federal 
statutes and regulations set the tenancy requirements, however, the 
tenancies are governed by State law and procedure in all other 
respects. In all of the programs, tenants may be evicted for violations 
of the lease or other good cause. Under HUD's regulations, the 
landlord, owner, or public housing agency must give written notice of 
the grounds for eviction, and this notice may be combined with a notice 
to vacate issued under State law. See 24 CFR 880.607(c), 882.511(d), 
966.4(l)(3), and 982.310(e).
    The Single Family Mortgage Foreclosure Act of 1994, Pub. L. 103-
227, requires several written notices and communications for single 
family mortgages during the pre-foreclosure, foreclosure sale, and 
mortgage collection processes. The regulations require that the 
mortgagees or lenders give the mortgagors in default on loans insured 
by HUD a written notice of delinquency. See 24 CFR 203.602. In 
addition, the regulations require that the foreclosure commissioner 
must serve notice of default and foreclosure sale by certified or 
registered mail, postage prepaid and return receipt requested on the 
current owner, occupants, mortgagors and lienholders not less than 21 
days before the foreclosure sale. See 12 U.S.C. 3758; see also 24 CFR 
27.103 and 27.105. For notices of default and acceleration, the lender 
or mortgagee must provide the borrower with written notice, by 
certified mail, that the loan is in default. 24 CFR 201.50. The lender, 
or mortgagee, is required to notify the mortgagor, or borrower, and 
each head of household who is actually occupying a unit of the property 
of its potential acquisition by HUD at least 60 days before the date on 
which the mortgagee reasonably expects to acquire title to the 
property. See 24 CFR 203.675.
    We note that the states also have jurisdiction over the residential 
default, foreclosure, and processes as applied to the real estate 
located within state borders. In addition, the laws regarding default 
and eviction notices for most rental property are within the primary 
jurisdiction of the states. For example, Colorado provides that with 
respect to a default on any consumer loan secured by a deed of trust or 
mortgage, recorded after January 1, 2002, which encumbers a dwelling, 
the owner of the evidence of indebtedness shall, not more than 45 days 
after initial default and at least 20 days prior to the recording of a 
notice of election and demand, or the initiation of a suit for 
foreclosure, provide written notice of such default and the opportunity 
to cure, to all persons liable on the debt at the address of the 
residence of each such person. Colorado Revised Statutes Sec.  38-38-
102.5(c)(2). Similarly, Georgia's rules regarding foreclosure provide 
that notice of the initiation of proceedings to exercise a power of 
sale in a mortgage, security deed, or other lien contract shall be 
given to the debtor by the secured creditor no later than 15 days 
before the date of the proposed foreclosure. Georgia Code Ann. Sec.  
44-14-162.2(a). The Georgia rules require that the notice shall be in 
writing and shall be sent by registered or certified mail or statutory 
overnight delivery, return receipt requested, to the property address 
or to such other address as the debtor may designate by written notice 
to the secured creditor, and shall be deemed given on the official 
postmark day or day on which it is received for delivery by a 
commercial delivery firm. Id.
    Just as the state requirements vary regarding the manner of notice 
provided to home owners and renters upon default, the state electronic 
transactions laws are also different. Approximately 39 states have 
enacted their own electronic transactions laws and ESIGN no longer 
applies to these states. Several of the states that have enacted 
electronic transactions laws have retained an exception for housing 
foreclosure and rental default notices. See e.g., Ala. Code Sec.  8-1A-
3(c)(2)(b)(2001); 5 Ill.Comp.Stat. 175/5-106 (2001). The ESIGN Act 
continues to apply to the remaining states and, therefore, housing 
foreclosure and rental default notices that are transmitted or executed 
in an electronic format or using an electronic signature are not 
legally valid in those states without UETA laws. The various state and 
federal laws that require written notice control the manner in which 
housing consumers receive notice of the delinquencies that threatened 
ownership and tenancy rights. The removal of the foreclosure and rental 
default notices exception to the ESIGN Act would give mortgagees and 
landlords an additional method of communicating this information to 
consumers via any electronic format available to them, including but 
not limited to facsimile, electronic mail, and digital or wireless 
devices. Information

[[Page 69204]]

regarding the potential impact on state and federal laws, and on 
consumers of the removal of the foreclosure and rental default notices 
exception from the ESIGN Act would assist in this evaluation.

The ESIGN Section 103 Evaluation

    The ESIGN Act directs the Assistant Secretary of Communications and 
Information to conduct an evaluation of the exceptions set out in 
section 103 of the Act to determine whether the exceptions continue to 
be necessary for the protection of consumers, and to submit a report to 
Congress on the results of the evaluation no later than June 30, 2003. 
The Assistant Secretary for Communications and Information is the chief 
administrator of NTIA. As the President's principal advisor on 
telecommunications policies pertaining to the Nation's economic and 
technological advancement, NTIA is the executive branch agency 
responsible for developing and articulating domestic and international 
telecommunications policy.
    The ESIGN section 103 evaluation is intended to examine the current 
status of federal and state regulations that govern, and industry 
practices among companies that issue notices for residential default, 
foreclosure, and eviction in preparation for a report to Congress on 
whether this exception remains necessary to protect consumers. This 
evaluation is not a review or analysis of federal and state regulations 
and rules relating to residential default, foreclosure, or eviction 
notices for the purpose of recommending changes to those regulations 
but to advise Congress of the current state of law, practice, and 
procedure regarding this issue. Comments filed in response to this 
Notice should not be considered to have a connection with or impact on 
ongoing specific federal and state procedures or rulemaking proceedings 
concerning residential default, foreclosure, and eviction notices.

Invitation to Comment

    NTIA requests that all interested parties submit written comments 
on any issue of fact, law, or policy that may assist in the evaluation 
required by section 103(c). We invite comments on ESIGN generally that 
assists in evaluating the narrower issues associated with residential 
default, foreclosure, and eviction notices as governed by the 
substantive law in these areas. The following questions are intended to 
provide guidance as to the specific subject areas to be examined as a 
part of the evaluation. Commenters are invited to discuss any relevant 
issue, regardless of whether it is identified below.
    1. Provide information regarding federal, state, and municipal 
regulations, laws, and ordinances that require written notice to 
consumers for residential defaults, foreclosures, and evictions.
    2. Provide state Uniform Electronic Transactions Act (UETA) 
provisions that require written notice to consumers by excluding 
housing foreclosure, repossession, and default notices from the 
provisions of the statute.
    3. Describe state or federal regulations, other than UETA or ESIGN 
laws, that require residential default, foreclosure, and eviction 
notices to be provided in written form or to be excluded from the 
operation of ESIGN or the applicable state UETA.
    4. Provide information regarding federal, state, and municipal laws 
or regulations that allow notice to consumers regarding residential 
defaults, foreclosures, and evictions in an electronic format.
    5. Discuss the impact that the removal of the residential default, 
foreclosure, and eviction notices exception from ESIGN, to allow 
mortgage or rental companies to send notices by electronic methods 
mail, may have on consumers and on federal or state consumer protection 
policies.
    6. If it is necessary to retain the residential default, 
foreclosure, or eviction notices exception to the ESIGN requirements, 
discuss the interest that this exception continues to serve or protect.
    7. Discuss the methods that are available for consumer protection, 
if the residential default, foreclosure, and eviction notices exception 
to ESIGN is eliminated from the statute. Describe the methods that may 
be used to verify:
    a. the notice was sent and/or received;
    b. the security of the transmission; and
    c. the recipient has the capability of receiving and reading the 
notice.
    8. What effect, if any, would the elimination of the residential 
default, foreclosure, and eviction notices exception to ESIGN have on 
the mission of federal and state agencies and organizations that have 
regulatory authority over the process and service of notice of default, 
eviction and foreclosure?
    Please provide copies of studies, reports, opinions, research or 
other empirical data referenced in the responses.

    Dated: November 12, 2002.
Kathy D. Smith,
Chief Counsel, National Telecommunications and Information 
Administration.
[FR Doc. 02-29025 Filed 11-14-02; 8:45 am]
BILLING CODE 3510-60-S