What are the new provisions?
The Transfer of Land Amendment Act 2014 (Vic) commenced on 24 September 2014. It amends the Transfer of Land Act 1958 (Vic) (Act) to include new sections 87A and 87B, which require a mortgagee to properly verify the authority and identity of a mortgagor by taking ‘reasonable steps’ before the execution of any mortgage, variation or transfer of a mortgage.
The purpose of the verification is to ensure that the person executing the mortgage is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt or obligation owed to the mortgagee.
A mortgagee is able to satisfy the onus of having taken 'reasonable steps' by either:
- following the standards set by the Registrar of Titles
- taking steps consistent with the 'participation rules' within the meaning of the Electronic Conveyancing National Law (Victoria).
In the event a fraud has been committed and reasonable steps were not taken to verify the identity of the mortgagor, the mortgagee will lose the benefit of indefeasibility of title as a consequence of registration and the mortgage will be void. However, fraudulent mortgages could remain registered in certain circumstances, for example where the mortgagee did take reasonable steps to verify identity but the fraudster used high quality forged identity documents that went undetected.
What are considered 'reasonable steps'?
Keeping in mind the new section 106A of the Act, the Registrar may determine requirements for paper conveyancing transactions, which may include, amongst other things, the standard to which identity and authority are to be verified. Any such determination must be published in the Government Gazette. The Registrar has not yet made any determination under this new section.
Subsequently, the only guidance currently available in determining what is considered 'reasonable steps', is the Model Participation Rules, in particular Schedule 8: Verification of Identity Standard (Verification of Identity Standard), which broadly states that the mortgagee must:
- (individual) where the mortgagor is an individual:
- conduct a face-to-face in-person interview
- sight an original identification document (such as passport, birth certificate or drivers licence)
- where an original identification document cannot be sighted, collect an identification document or declaration. There are additional guidelines which apply in this instance. Particularly, the person providing the declaration must also be present at the face-to-face in-person interview
- (body corporate) where the mortgagor is a body corporate, confirm the existence of the body corporate by an ASIC search and verify the identity and authority of the person signing on behalf of the body corporate in accordance with the Verification of Identity Standard for an individual
- (individual or body corporate by attorney) where an attorney is acting on behalf of the mortgagor, confirm the power of attorney refers to the relevant person and transaction and verify the identity of the attorney in accordance with the Verification of Identity Standard for an individual.
If the Verification of Identity Standard is not followed, a mortgagee may need to prove that they have taken reasonable steps to identify the mortgagor.
Regardless of whether the Verification of Identity Standard is used or not, a mortgagee or their agent must undertake further steps where the mortgagee or their agent knows or ought reasonably to know that:
- any identity document is not genuine
- any photograph on an identity document is not a reasonable likeness of the person being identified
- if it would otherwise be reasonable to do so.
What should mortgagees, or their agent, do?
The onus is on the mortgagee, or their agent, to be able to demonstrate they had taken 'reasonable steps' to verify the authority and identity of a mortgagor before execution of any mortgage or a variation or transfer of a mortgage.
The mortgagee should have procedures and policies in place for record keeping to ensure they can demonstrate they have taken proactive steps to comply with the Verification of Identity Standard and that verification of identification documentation can be produced to defend any claim made to set aside a registration of a mortgage or transfer or variation of a mortgage. These procedures and policies should take into account Privacy Act implications for the collection, storage and use of information in verification documents.
The Land Titles Office released a Consultation Paper in November 2013 prior to the new provisions, and it was noted that any material supporting verification of identity, or a copy where appropriate, must be retained for at least seven years from the date of lodgement of the instrument concerned.
In terms of practical changes, it is now required that witnesses to a mortgagor’s signature, not only execute the instrument but insert their full name and address.
These procedures should tie into your obligations under the 'new anti-money laundering know your customer and customer due diligence rules' which commenced on 1 June 2014.