Real Property and Conveyancing Legislation Amendment Act 2009 By Madeleine Perrignon | June 2009 Area of Expertise | Business & Property
Summary The Real Property and Conveyancing Legislation Amendment Act, 2009 (the ‘Act’) was passed on 13 May 2009. It is of particular importance to financiers in that mortgagees and their solicitors will need to follow strict identification procedures before presenting a mortgage for lodgement. If they fail to comply with the procedures, then the Registrar General will have powers to either refuse to register the mortgage or to cancel its registration. Also, mortgagees will have obligations to ensure that land sold pursuant to a power of sale is sold for market value.
Who Does This Impact? Mortgagees and their advisers.
What Action Should Be Taken? The changes relating to mortgages will commence on a date to be proclaimed. When the changes commence, mortgagees must review their identification procedures for mortgagors. They will also need to obtain adequate real estate and valuation advice regarding the proposed sale price of property sold pursuant to a power of sale.
Identification of the Mortgagor Pursuant to the proposed Section 56C of the Real Property Act 1900, the mortgagee must take reasonable steps to confirm the identity of the mortgagor prior to lodging a mortgage, in order to confirm that the person who is executing the mortgage is the registered proprietor of the land, or will be the registered proprietor subsequent to lodgement of the transfer. If the mortgagee fails to comply with the identification requirements, then the Registrar General may either refuse to register the mortgage or may cancel the recording in the register. The mortgagee must make a written record of the steps taken to comply with the requirements and must retain the record (for 7 years after the mortgage’s registration) together with a copy of any document obtained by the mortgagee for that purpose, as the Registrar General is entitled to make requisitions regarding compliance by the mortgagee with the identification requirements. The ‘reasonable steps’ are yet to be prescribed, but is likely to be the 100 point check already utilised by financial institutions. The proposed Section 56C will also apply when the mortgage is transferred from another mortgagee. If the original mortgagee failed to follow the steps prescribed, then the Registrar General again has the power to refuse to register the mortgage or cancel its registration. The purpose of the amendments is to reduce the incidence of fraud. In the unlikely case that the mortgagee has complied with the identification requirements, but has actual or constructive notice that the mortgagor is not the same person as the owner of the land, the Registrar General may also cancel registration of the mortgage. It is not known when the changes relating to mortgages will commence, and the proposed Section 56C will not apply to mortgages
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Real Property and Conveyancing Legislation Amendment Act 2009 by Madeleine Perrignon
accepted for lodgement before the commencement date. Currently, compensation (pursuant to the Torrens Assurance Fund) may be payable to parties who lose the benefit of their interest in land due to fraud. If a mortgagee fails to comply with the proposed Section 56C, they will not be eligible for compensation.
Eligible Witnesses The Act amends who is entitled to witness the execution of mortgages. (Witnesses to applications, dealings or caveats relating to land in New South Wales are also affected by these amendments.) The witness must: 1. 2.
Be at least 18 years of age; and Have known the mortgagor for more than 12 months, or has taken reasonable steps to ensure the mortgagor’s identity.
Currently, the witness requirements are fulfilled if the witness is personally acquainted with the person executing the document or if they are satisfied as to their identity. The obligations will become more onerous in that rather than merely being satisfied as to the identity of the person executing the document, the witness must take reasonable steps to ensure their identity. If the mortgagee’s lawyer has witnessed the mortgagor’s signature, then they must include an identification certification. They should also make a written record of the steps taken to comply with the requirements, and they should retain the record together with a copy of any documents obtained for that purpose.
Mortgagor’s Solicitors If a mortgagor’s signature has been forged, the solicitor who purports to act for the mortgagor risks being sued by the mortgagor and the mortgagee, unless reasonable steps were taken to ensure that the actual mortgagor executed the document.
Duties of Mortgagees in Exercising a Power of Sale Pursuant to general law, mortgagees already have an obligation to obtain market value when they sell properties pursuant to a power of sale. Now, this requirement will be specified in legislation, in that pursuant to proposed Section 111A of the Conveyancing Act, obligations will be imposed on the mortgagee to take reasonable care to ensure that the land is sold for: Act 1. 2.
Not less than its market value; or The best price it may be reasonably be obtained if the land does not have an ascertainable market value.
This means that mortgagees should obtain valuation advice before selling the property. A person who suffers loss or damage as a result of the breach of the duty can claim damages from the mortgagee exercising the power of sale. In order to protect themselves, mortgagees should record the steps taken to ascertain the fair market value of the property. The required steps have not yet been specified. However, presumably, a valuation with supporting real estate agent advice should be sufficient.
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Real Property and Conveyancing Legislation Amendment Act 2009 by Madeleine Perrignon
For more information, please contact:
Madeleine Perrignon Special Counsel T: 02 8257 5710 madeleine.perrignon@turkslegal.com.au
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