By Alan Steven Wolf of The Wolf Firm By Alan Steven Wolf of The Wolf Firm (Reprinted with permission from Network News - January/February 1997)
Legal implications of E-mail.
Mortgage bankers are ending the 20th century with a host of high-tech tools tailored toward gaining efficiencies in production, servicing and secondary marketing. Among the most significant new tools is e-mail. E-mail systems tie together inter-company and intra-company workgroups and facilitate fast and dependable transmission of essential data. It is not uncommon to find e-mail as virtually the sole means of communication in larger organizations, replacing the printed interoffice memoranda. Key managers often field 100 or more messages a day as employees at all levels of the corporate hierarchy find easy access to critically needed advice. Many internal e-mail systems are now connected, or are soon to be connected, to the Internet allowing the simple transmission of information to a wide variety of colleagues, including investors, vendors and legal counsel.
The phenomenal rise in the use of e-mail rests with its speed, low cost, ease of use and the informal nature of the communication. E-mail messages move at the speed of light, cost significantly less than postal mail or fax, can be sent to one or 1,000's of people with the click of a mouse, can be saved, stored and searched with ease and result in informal communication closer to speech than formal writing.
Within these great strengths lie some significant legal risks which mortgage bankers must acknowledge, assess and, whenever possible, control. In part because of the great advantages of the use of e-mail, many companies have not seriously evaluated the potential liability involved with e-mail and have not developed protocols for e-mail use. Without such protocols, e-mail euphoria can quickly lead to e-mail blues.
INTRA-COMPANY E-MAIL
Mortgage bankers have learned from hard experience that written communications need to be timely, precise and nondiscriminatory. Most mortgage bankers have established procedures to protect the company in the anticipation of the discovery of written company documents as a part of litigation. Employees are regularly trained on the type of information to include and, more importantly, the type of information to avoid in letters, servicing logs and other written communications.
Unfortunately, these rules and procedures are seldom applied to verbal statements made
within the office environment. For example, while an employee might be trained not to
mention in writing his or her belief that the borrower is a drunk or stupid, verbal
statements describing the borrower in such derogatory terms are sometimes made by
employees and often overlooked by management.
As e-mail has developed, it has become clear that many people treat e-mail like verbal
speech, often committing thoughts to the computer keypad that they would not put on paper.
The speed and simplicity of e-mail lends itself to conversational seat-of-the-pants
statements and impressions.
E-mail communications can create especially troublesome evidence in litigation. Verbal statements are discoverable through depositions, (sworn pre-trial testimony by witnesses) but pinpointing the statements and the parties involved is a time consuming and expensive task. Witnesses often fail to remember statements made or heard long ago. On the other hand, statements
made in e-mail messages are easily discoverable, and provide direct evidence that is difficult to controvert. In short, email can often provide the smoking gun sought by opposing counsel.
Many people believe that hard evidence of the e-mail messages can be avoided by merely ensuring that the e-mail messages are deleted from the computer system of the recipient. Unfortunately, e-mail has a life of its own; it resides on the sender's system in various logs, on the recipient's system, on various administrative logs and on backup tapes and parallel drives. In addition, the e-mail message could also have easily been forwarded to others and printed in numerous locations. It is very difficult, if not impossible to ensure that a record of the e-mail message no longer exists.
Mortgage bankers must recognize e-mail is a tremendous tool for their businesses and a potential danger in litigation.
Mortgage bankers must recognize e-mail is a tremendous tool for their businesses and a potential danger in litigation. The mortgage banker's response must be to actively apply all procedures and rules to e-mail and that would be applied to all other written communications inside or outside the company.
INTER-COMPANY E-MAIL
Additional concerns arise with inter-company e-mail, particularly in regard to maintaining legal privileges and proprietary information. Both of these issues derive from the lack of security on Internet communications.
Proprietary information generally involves trade secrets which a mortgage banker wants to keep away from its competitors. This information can include special pricing information, costs of servicing, special compensation packages for brokers and any other type of information that is unique and special to the organization.
The right of a client not to have disclosed in a court proceeding what he has discussed with his lawyer is known as the attorney client privilege. The privilege is based on the need to ensure that everyone may completely confide in his lawyer without fear of later disclosure. This important privilege needs to be maintained even as mortgage bankers speak with their attorneys over the Internet.
In very general terms, the law protects both trade secrets and the attorney-client privilege if the information is always relayed in confidence. Similarly, both are lost if the parties do not take reasonable steps to maintain the confidentiality of their communications. The courts often draw fine lines when deciding if parties have maintained confidentiality, and inadvertent disclosures are sometimes found to waive the protections. For example, courts have held that cellular phone communications, which are easily intercepted, cannot be construed as confidential communications and trade secret and attorney-client privilege protections can be lost by use of these devices.
The question of whether communications over the Internet waive these protections thus rests on whether communications over the Internet have a reasonable expectation of privacy. Understanding the issue requires an understanding of the Internet, the vehicle through which virtually all inter-office e-mail is now carried. The Internet is a sophisticated network of computers tying together millions of computer systems. Today, over 40 million people have Internet e-mail addresses, and that number is growing exponentially. Unlike an intra-office e-mail system, which is maintained by a mortgage banker and secure from outside third parties, inter-office e-mail travels a long and unsecure route from computer system to computer system before the e-mail reaches its final destination.
Is it reasonable to expect privacy in this system? That question remains unanswered by the courts. The Electronic Communications Privacy Act, passed in 1986 and later amended in 1994, makes it a felony for anyone but the sender and receiver to read electronic mail messages exchanged over public e-mail systems. This might bolster an argument that the participants to the communication reasonably expect privacy. But as noted above, cellular phones, also covered by the Act, often do not receive such protection by the courts.
Of course, one way to avoid this problem is not to send Internet communications, an unappealing solution, given the efficiencies of Internet communication. A second solution lies with encryption. With encryption, an e-mail message is garbled and a key system is used to decipher the information. While encryption is a very secure method of sending information, it is also very cumbersome. For truly secure transactions, each party must have each other party's encryption key. Moreover, the added step of encrypting and decrypting messages takes away much of the immediacy of e-mail.
Except for the most confidential matters, the risks associated with Internet e-mail are more than offset by gains achieved through its use. Indeed, the cautious use of e-mail can greatly enhance efficiencies of mortgage banking companies. But mortgage bankers should keep in mind that their communications may not always be kept confidential and create rules for the judicious use of this new medium by their employees.
For further information please contact:
The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
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