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Mortgagee identification obligations: What are the rules?

Verification of identity (VOI) commenced in Victoria on 24 September 2014 under the Transfer of Land Amendment Act 2014 (Vic) (the Act). The Act includes new sections 87A and 87B which require a mortgagee, or their agent, to take reasonable steps to verify the authority and identity of a mortgagor. This brings Victoria into line with the requirements in Queensland, New South Wales, South Australia and Western Australia.

Purpose of the Act

The reason put forward in the Victorian Bill’s second reading speech was that there had been instances where a fraudulent mortgage was registered as a result of a financial institution’s neglect and failure to adequately verify the party with whom it was transacting (and thereby contributing to the fraud).

The purpose of the verification is to ensure that the person executing the mortgage or whose behalf the mortgage is executed, as mortgagor, is one and the same person who is the registered proprietor of the land that is the security for the payment of the debt.

“Reasonable steps”

A mortgagee is able to satisfy the onus of having taken “reasonable steps’ by either:

  • Following the standards sets by the Registrar of Titles, or
  • Taking steps consistent with the ‘participation rules’ within the meaning of the Electronic Conveyancing National Law (Victoria).

What should mortgagees, or their agent, do?

The mortgagee should adopt rigorous verification requirements to minimise the risk of identity fraud. This means that appropriate and thorough procedures and policies are in place for record-keeping. It can also help demonstrate that proactive steps have been taken to comply with the VOI and documentation can be produced to defend any claim made to set aside a registration of a mortgage or transfer or variation of a mortgage. It is also wise to obtain advice about what is required to comply with the requirements.

Consequences

If a Registrar is satisfied that a mortgagee did not take reasonable steps and the registered proprietor of the land did not grant the mortgage, the Registrar may:

  • If the mortgage has not been registered, refuse to register the mortgage, or
  • If the mortgage has been registered, remove the mortgage from the Register

If you wish to obtain more information or advice on how to comply with the requirements of VOI, do not hesitate to contact Senior Litigation Lawyer, Lynda Lim, for a full and frank discussion.