The Difference Between a Notary Public & a Signature Guarantee

A notary public and signature guarantee both confirm the identity of document signatories. Notary and signature guarantee stamps don’t reflect on the contents of the documents and they differ in the level of fraud protection each provides. Knowing the differences between a signature guarantee vs. notary service helps provide the most appropriate protection for a transaction.

A notary public is an individual commissioned by the state to verify the identity of people who sign legal documents. A notary public signature and seal attest that every signature on a document is valid. However, it does not confirm whether the content of the document is legal or accurate.

Acceptable forms of ID for notarization include:

• Driver’s license.
• State ID.
• Passport.
• Green card.
• U.S. military ID.

Also, some states allow notaries to personally vouch for someone. Obviously, this comes with increased risks. Notarization protects consumers from fraud by preventing others from misrepresenting their interests in legal documents. It also adds legitimacy to transactions, and in doing so, increases consumer trust.

Oddly enough, despite the fact that e-notarization provides far greater fraud protection, most states haven’t adopted it yet. Why? Perception. In general, consumers don’t trust security when it comes to online transactions. They're often reluctant to use the internet for legal matters serious enough to require signature verification.

Each state has its own laws regarding the training, certification and responsibilities of a notary public. Some states require legal training; others ask for little more than an application fee.

Even the notary stamp has changed over time to accommodate more affordable solutions. The notary public signature and official stamp make up the notary seal. Traditional notary seals included embossed stamps or labels; most notaries today use self-inking black stamps.

Anyone who meets the requirements of the state can become a notary. Many organizations have someone on site who can provide notary services. It’s a common fringe benefit for membership at banks and libraries.

There are often restrictions on how much someone can charge for notary services. In some states, mobile notaries act as independent contractors who travel to clients to notarize documents. In states with fee restrictions, mobile notaries may not be able to include a surcharge for:

• Travel expenses.
• Expedited service.
• After-hours service.

Most states restrict notaries to verifying signatures and witnessing oaths. Notaries are not commonly allowed to assist in filling out legal documents. In Louisiana and Puerto Rico, only licensed attorneys may provide notary services. These certified notaries public can notarize documents they prepare for their clients if the only financial gain they receive is for the preparation itself.

If the lawyer is a party to an agreement, such as assuming power of attorney for his client, he would not, in good faith, be able to notarize the document. There is no state where a notary can verify his own signature, lawyer or not.

No. Federal, state and municipal laws determine guidelines for notarization. Due to the potential for fraud, the law requires signatures to certain documents to be verified before a transaction is processed. Yet, there are benefits to getting a notary seal even when it's not required by law. Notarizing a contract could prevent the parties involved from making forgery claims. Notarizing a will helps establish its validity in court.

The following documents commonly require notarization:

• Real estate transactions.
• Affidavits and oaths.
• Copy certifications.

Other documents that are commonly notarized:

• Business contracts.
• Bills of sale.
• Power of attorney statements.

Any signature can be notarized. Doing so provides an extra level of protection against fraud.

A signature guarantee, also called a medallion stamp or medallion signature guarantee, fills two roles. It verifies the identity of people who are signing certain financial documents and it creates a guarantee against financial loss if the signature turns out to be fraudulent.

Specifically, documents involved in securities transactions need a medallion stamp and signature. Common examples include:

• Stocks and bonds.
• Mutual funds.
• Insurance policies.

If an investor wants to transfer her investments from one brokerage to another, she needs a medallion signature guarantee. Without one, the transaction won’t happen. It's federal law, but it's also the preferred policy for the brokerages. Neither wants to take the risk of transferring the funds to the wrong person.

A medallion stamp is similar to a notary seal. The official providing the guarantee uses a stamp design that includes a barcode. Instead of black ink, a signature guarantee stamp uses a special green ink used in combating financial fraud.

Because of the financial liability involved, it’s more difficult to obtain a signature guarantee vs. a notary public signature. Similar restrictions regarding personal involvement to a transaction apply to professionals providing medallion signature guarantees. For instance, an officer of the brokerage where an investor is moving his stocks cannot provide a medallion stamp for the transaction.

Unlike notaries who are commissioned by state governments, people who perform signature guarantees work for financial institutions. The U.S. Securities and Exchange Commission requires these individuals to be members of one of the following:

• Securities Transfer Agents Medallion Program.
• Stock Exchanges Medallion Program.
• New York Stock Exchange Medallion Signature Program.

Not all banks belong to these programs. More importantly, banks won't always supply a guarantee to someone who isn’t a loyal customer. This can leave a consumer in a pickle if he wants to do business without the right connections. He might need to start a new account at a new bank and wait several months before he qualifies for a signature guarantee.

Guarantees carry specific liability limits depending on the financial institution where they’re performed. Credit unions often have the lowest liability at $50,000, while major banks and investment firms can cover transactions up to $10,000,000.

The documents needed for a signature guarantee vs. a notary public signature differ, as well. A notary simply needs to prove a signatory is who she says she is. To obtain a medallion signature guarantee, the person has to prove her identity, as well as the ownership and value of the securities involved in the transaction.

Acceptable forms for obtaining a signature guarantee include:

• Driver's license.
  
• Stated ID
  
• Passport.
  
• Green card.
  
• U.S. military ID.
  

In addition to:

• Recent account statements showing ownership of securities.
• Current valuation of securities involved in the transactions.

Unfortunately, some situations call for additional proof. For instance, if someone is transferring stocks on behalf of another person, he would have to provide documentation such as a power of attorney to show he had the legal right to represent the owner in financial matters.

Sometimes a signatory wants a document notarized but due to the form’s design, there isn’t enough room for an official notary seal. The best option in these situations is to notarize an acknowledgment or oath stating that the signature on the form is valid. Documents requiring a signature guarantee must have the appropriate space on the form for the stamp.

Given the rise in e-commerce, it’s no surprise there’s a growing need for digital notary and signature guarantee services. The Electronic Signatures in Global and National Commerce (E-SIGN) Act regulates the issue on the federal level. The Uniform Electronic Transactions Act (UETA) regulates digital notary services at the state level for every state except New York, Washington and Illinois.

Also, these laws stipulate that an e-signature must include a consent to do business and an intent to sign. E-signatures take many forms. The most common form, as of 2019, is a typed version of the signatory’s name. Other methods include:

• Digitized handwritten signatures acquired through the use of a touchscreen device.
• Numerical codes.
• Emails and passwords.
• Voice authorization.

State laws vary widely on the types of documents that qualify for e-notarization. E-SIGN and UETA carry certain restrictions. Some states have overridden some or all of those restrictions through separate laws. Several states don’t yet have the infrastructure in place to recognize e-signatures. A separate type of online notarization that is legal in select states is remote notarization performed via webcam.

There are limited options for verifying signature guarantees online. At present, only one company – eSignature Guarantee – provides the service. Liabilities are capped at $500,000.

While the signer is responsible for paying for notary or medallion signature services, they’re often available for free or for a small fee. Consumers should inquire about free notary services at:

• Banks and credit unions.
• Government offices.
• Public libraries.

People in need of a medallion stamp might obtain them for low or no fees from financial institutions where they are loyal customers.

Improper validation calls the legality of a transaction into question. If the job isn’t done right, it can put all parties involved at risk, even if the signatures are legitimate. How?

Invalid notary and guarantee services pose risks, such as:

• An unhappy party can contest the legality of a document in the future.
• An organization can refuse to process an important transaction.
• The document fails to protect the parties involved in a transaction.
• Parties might not be protected by a contract.

Fortunately, even laypersons can detect the most common mistakes. It doesn't take specialized legal knowledge to spot a misspelling or smeared ink. It’s worth taking a few extra minutes to rule out obvious problems.

Signatories should keep an eye out for these common errors:

• The name on the stamp differs from the notary's signature. Signatories should keep a look out for missing initials, potential name changes and misprints.
   
• The date on the stamp has expired. It isn’t enough to simply cross out the old date and write a new one, even if the new date is correct.
   
• A notary certificate has a missing or an incorrect name, date or venue information.
  
  
• A stamp isn’t legible. The stamp should be applied last to ensure that it is placed away from signatures and other contract wording. Also, care should be taken to prevent smearing or blurring.
  
  Read More: How to Notarize Your Signature

The consequences for signature verification fraud vary widely from one incident to another. Notaries duped by fake IDs, or consumers with a convincing story, will face different penalties than someone who knowingly signs off on a false signature. Financial institutions whose agents provide fraudulent guarantees pay for them – literally.

The first order of business is to contact the police and report the fraud. Victims should follow up with a visit to a lawyer specializing in transactions that are similar. Once they have protected or reclaimed their assets, they should turn their attention toward the notary or bank official who verified the false signature.

Consumers can file complaints against notaries with the secretary of state. This often results in a notary losing his commission. Depending on the nature of the fraudulent activity, notaries public may also face criminal charges.

Victims of fraudulent notarization may also be able to sue the notary. While some states require notaries to carry errors and omissions insurance, that coverage doesn’t always extend to damages from fraud.

The SEC receives complaints of fraudulent use of a signature guarantee. However, it is often best to work directly with the transfer agent for the transaction. This is the person who accepted the signature guarantee. This person can alert the appropriate authorities and start the process of returning the stolen or mishandled assets to the real owner.

Notary and medallion signature guarantees protect consumers from fraud. Each type of service offers a different level of security against risk. Each comes with its own methods for solving problems. Knowing the differences allows people to avoid common issues that lead to invalidated documents and crime.