21 Aug 2014

Tough identity requirements for mortgagees are expected to be introduced shortly in Victoria

by Nick Poole, Anthony Burke

Lenders should be reviewing their verification systems as identity requirements for mortgages spread across Australia.

We've previously noted the changes to legislation governing mortgages to place a positive obligation on mortgagees to adequately verify the identity of mortgagors. Failure to fulfil the identification requirements can have serious ramifications for mortgagees. Victoria is set to follow Queensland, New South Wales, South Australia and Western Australia by introducing similar identity requirements.

Victoria's proposed amendments to the Transfer of Land Act 1958 (Vic)

The Transfer of Land Amendment Bill 2014 (Vic) was introduced into the Legislative Assembly on 5 August 2014, and if passed, will amend the Transfer of Land Act 1958 (Vic).

One of the proposed amendments is to require a mortgagee to properly verify a mortgagor by taking "reasonable steps", bringing Victoria into line with the requirements in Queensland, New South Wales, South Australia, and Western Australia.

What does this mean for lenders?

If you are a lender and taking a mortgage or transfer of mortgage over real property in Queensland, New South Wales, South Australia, Western Australia or Victoria (if the Bill is passed), you need to take certain steps to verify the identity of the mortgagor. If you fail do to this, you will not obtain the benefit of indefeasibility in respect of the mortgage and the mortgage may be held to be void.

The identity requirements vary slightly between the states. For example, in Queensland you are required to take "reasonable steps". The "reasonable steps" requirement is equivalent of the best practices currently employed by reputable mortgagees, such as the satisfaction of a 100 point identification verification. Regardless of these statutory requirements, lenders may already have appropriate systems in place to comply with anti-money laundering and know your client requirements.

Why is there an onus on the mortgagee?

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

What should lenders be doing to avoid their mortgage being held to be void?

You should:

  • be aware of the particular verification requirements in each state;
  • perform the verification requirements diligently; and
  • maintain a record of the steps taken.

If the mortgage is not in Queensland, New South Wales, South Australia, Western Australia or Victoria, it would be prudent to adopt rigorous verification requirements as soon as possible to mitigate the risk of identity fraud.

It will also mean that you will have systems in place ahead of time if Tasmania and the territories go ahead and introduce requirements similar to those in Queensland, New South Wales, South Australia, Victoria and Western Australia.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.