Update: Indiana’s New Witness Requirement on Recorded Documents
Change of an ‘Or’ to ‘And’ Cause Challenges
The recent rewording of a law has caused quite a stir in the business and real estate communities. That’s because changes to Indiana Code 32-21-2-3(a), effective July 1, 2020, now require witness signatures on recorded documents.
Senate Enrolled Act 340, passed by the Indiana Senate, merely changed an “or” to an “and” but by so doing, it changed this well-established law to require a common law “proof” of a disinterested party to the transaction serving as a witness to the execution of an instrument. This requirement caught many off guard, necessitating re-documenting transactions or hurriedly changing forms.
The perceived requirement of having the witness swear that he or she is not a party to the real estate transaction (deed, mortgage, lease, etc.) disclosed by the instrument and does not “benefit” from the transaction adds a layer of complexity to closings. An additional person must now participate in the closing process and swear to an oath. Many financial institutions are reluctant to have their employees give an oath, which rules them out as witnesses. Furthermore, it’s unclear how “benefit” is to be defined in this scenario.
Could a year-end bonus based on loan production technically constitute receiving a benefit from this one transaction? While certain financial institutions may not permit their employees to witness signatures, title companies appear to be fine with their employees acting in this role.
Rumors have swirled that many of Indiana’s 92 county recorders are ignoring the statute and accepting documents without witness signatures, provided the document itself is properly notarized. A national title company representative informed us recently that only 20 Indiana county recorders are requiring witness signatures, with most of those in Lake, Morgan, St. Joseph, Elkhart, Jennings, Dubois, Pike, and Posey counties.
The Indiana Recorders Association is working with the Indiana State Bar Association and the Indiana Land Title Association on legislation hoped to be introduced in January 2021. The goal is to make clear what is required and hopefully do away with the witness requirement. Other more immediate options considered have been litigation and an executive order from the Governor, but both have been abandoned.
This issue appears to be just another challenge of conducting business in 2020. Stay tuned…
Madalyn S. Kinsey is a partner at Kroger, Gardis & Regas LLP focusing her practice on commercial lending and commercial real estate transactions. She can be reached at msk@kgrlaw, and at 317-777-7429.
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