Enforcing Electronic Notes in Indiana Foreclosure Actions

Electronic notes (“eNotes”) are becoming an increasingly routine feature of residential mortgage lending. Indiana law expressly recognizes the enforceability of eNotes; however, borrowers continue to challenge their enforceability – often based on concepts rooted in paper instruments. In this article, I will provide a brief overview of the governing law, common defenses, and practical considerations for lenders and servicers seeking to enforce eNotes in Indiana.

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Governing Law for eNotes in Indiana

Indiana has adopted the Uniform Electronic Transactions Act (“UETA”), which governs various aspects of electronic records including the legal effect of digital signatures, transferability, and control/ownership. I.C. 26-2-8 et seq. Specifically, the UETA provides that an electronic form cannot be denied legal effect solely because it is in an electronic format. The UETA also recognizes the transferability of eNotes when a lender or servicer is in control of the authoritative copy of the document – which is unique, identifiable, and unalterable except as permitted.

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How eNotes Are Created, Transferred, and Controlled

At origination, an eNote is created as an electronic record and electronically signed by the borrower. The system used to create the eNote establishes a single authoritative copy. Subsequent transfers do not occur through endorsements or physical delivery, but through changes in control of that authoritative copy. A person with control of a transferable electronic record has the same rights as a holder of a negotiable instrument under Article 3 of the Uniform Commercial Code (UCC). Rather than displacing Article 3, UETA modifies its application in the electronic context. In practice, many eNotes are tracked through the MERS eRegistry, which identifies the part in control at a given time. While registry records are not dispositive, they are commonly used to support evidentiary proof of control.

Indiana appellate courts have not issued extensive opinions devoted exclusively to the enforceability of eNotes. However, Indiana foreclosure case law consistently emphasizes principles of standing, entitlement to enforce, and evidentiary sufficiency over the physical form of the note. The most common defense seen in the relevant case law concerns the validity of the borrower’s signature on the note. The UETA defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with a record and executed with the intent to sign the record.” I.C. 26-2-8-102(8).  

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Common Borrower Defenses and How Courts Address Them

In Poythress v. Esurance Insurance Company, 96 N.E.3d 663 (Ind. Ct. App. 2018), the Indiana Court of Appeals held that a “signature may not be denied legal effect or enforceability solely because it is in electronic form” and “if the law requires a signature, the law is satisfied with respect to an electronic record if the electronic record includes an electronic signature.” The court also indicated that "[a]n . . . electronic signature is attributable to a person if it was the act of the person. The act of the person may be proved in any manner . . . ." Based on the court’s reasoning, this defense can be overcome with affidavit or witness testimony establishing the eNote contains the borrower’s electronic signature.

Another common defense presented in eNote cases concerns the Plaintiff’s ability to establish standing to enforce an eNote, especially if the Plaintiff was not the originator of the loan and merely acquired the loan via transfer. This defense can be overcome with the presentation of evidence – typically in the form of eRegistry records, an affidavit, and/or witness testimony – that Plaintiff controls the authoritative copy of the eNote.  

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Practical Considerations for Enforcing eNotes

Practical tips for enforcing eNotes include 1) plead clearly – allegations regarding electronic notes in the initial complaint should be explicit and include specific citations to the UETA and/or state statute adopting the UETA; 2) evidence – affiants and affidavits should be able to establish the basic requirements of the UETA including the authoritative copy, control of the authoritative copy, and the electronic signature of the borrower; and 3) be consistent – all pleadings, affidavits, and records presented throughout the case should reference the appropriate UETA citations and language.

Controlling authority in Indiana exists in the case of Good v. Wells Fargo Bank, NA, 18 N.E.3d 618 (Ind. Ct. App. 2014). In Good, the court concluded that the summary judgment evidence relied on concepts associated with traditional paper notes, such as endorsement and possession, rather than the requirements applicable to eNotes, including control of the authoritative copy. The decision illustrates the importance of aligning affidavits and evidentiary submissions with the requirements applicable to electronic notes.

Persuasive authority in support of these principles can be found in Rivera v. Wells Fargo Bank, N.A., 189 So. 3d 323 (Fla. 4th DCA 2016). In Rivera, the court determined that the evidentiary record sufficiently established control of the eNote through a sworn certificate that included a copy of the electronically signed note and supporting documentation identifying the controller and delegatee. The materials confirmed the eNote’s location, the relevant property and borrower information, and validation of the borrower’s electronic signature through MERS records.

Electronic notes are enforceable under existing and established Indiana law, but their successful enforcement depends on preparation and clarity. By understanding UETA’s framework, anticipating borrower defenses, and presenting well-supported evidence, lenders and servicers can effectively prosecute foreclosure actions involving electronic notes.

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Key Takeaways

1. Indiana law expressly recognizes the enforceability of eNotes.
   Under the Uniform Electronic Transactions Act (UETA), an electronic note cannot be denied legal effect simply because it exists in electronic form.
2. Control of the authoritative copy is critical.
   Lenders and servicers must be prepared to demonstrate control of the authoritative copy of the eNote, typically through registry records, affidavits, or witness testimony.
3. Borrower defenses often focus on signature validity and standing.
   These challenges can typically be addressed with evidence establishing the borrower’s electronic signature and the plaintiff’s control of the transferable electronic record.
4. Consistency in pleadings and evidence is essential.
   Complaints, affidavits, and testimony should reflect the UETA framework and avoid language associated with traditional paper notes.