There have been an increasing number of reported cases of conveyancing fraud across Australia in recent years and legislation requires updating to try and reduce the risk to both property purchasers and mortgagees.
Just a couple of weeks ago (August 11, 2011), Today Tonight on Channel 7 in Sydney reported on a new wave of "house stealing" that originated in Perth and is slowly spreading into other states. In this particular scam, Nigerian fraudsters are posing as home-owners in houses where the owner was living overseas and appointing real estate agents to sell the property.
Whilst the homes in this particular scam are generally mortgage free, it highlights the fact that in real estate transactions there are obviously some serious shortfalls in the proof of identification methods used. High profile real estate figure Neil Jenman even goes so far as to say that he believes that current legislation has created a situation where "it is easier to steal a house than buy one!"
What is being done?
Certain long anticipated amendments to the Real Property Act 1900 (the Act) made by the Real Property and Conveyancing Legislation Amendment Act 2009 (NSW) will commence on 1 November 2011.
These particular amendments will look at the identification process for anyone taking out a mortgage on a property. They will place a statutory onus on:
- mortgagees to take "reasonable steps" to ensure that the mortgagor is the person who actually did sign the mortgage document and in the case where the mortgage is signed under a Power of Attorney, to also take the same reasonable steps in relation to the identification of the attorney.
- witnesses to a person's execution of an application, dealing or caveat under the Act, to certify, among other things, that he or she is an 'eligible witness' which may or may not involve that witness taking "reasonable steps" to ensure the identity of the person signing the document.
What are the amendments?
The amendments can be summarised as follows:
- Section 56C(1) of the Act will now require mortgagees to confirm the identity of mortgagors before presenting mortgages for lodgement by taking "reasonable steps" to confirm the identity of the person in question.
The Real Property Amendment Regulation 2011, commencing 1 November, prescribes these reasonable steps as essentially either:
- complying with the Anti-Money Laundering and Counter-Terrorism Financing Rules in relation to the mortgage, or
- (i) in relation to natural persons, collecting the person's
name, date of birth and residential address and then verifying the
information from certain identification documents as set out in the
Regulation,
(ii) in relation to bodies corporate, collecting certain information listed in the Regulation (which includes for eg, name, A.C.N and registered office) and verifying the information from a search made within the previous 30 days.
There is no requirement on the mortgagee to collect the information from the mortgagor in a face to face meeting. If the mortgage is executed pursuant to a Power of Attorney, then the mode of identification set out above will apply to both the mortgagor and the attorney (whether it be a natural person or a body corporate).
- Section 117 (4) of the Act will define an eligible witness to a transaction as a person who is at least 18 years of age, is not a party to the application, dealing (ie, any dealing and not just a mortgage) or caveat and has either known the person signing in their presence for more than 12 months, or has taken reasonable steps to ensure the identity of that person.
These reasonable steps will be less onerous than the ones which will apply to mortgagees and mean that if a witness has not known the mortgagor for at least 12 months they will need to "sight" certain prescribed identification documents.
A complete list of acceptable identification documents that can be used by a mortgagee or witness to comply with the identification obligations under the Act and Regulation can be found in the list of definitions at Clause 3 of the Regulation.
If a mortgagee takes the steps prescribed by the regulations, it will be considered to have taken reasonable steps to ensure the identity of the mortgagor under section 56 (1) of the Act.
What are the consequences for failure to comply?
The main consequences of failing to comply with the identification procedures include the Registrar General potentially refusing to register the mortgage in question or, if the mortgage has already been registered but involved fraud, the Registrar General will have the power under the Act to cancel the recording of that mortgage. (For a mortgagee, this would result in them losing their registered interest.)
Witnesses who fail to comply with the obligations may be personally fined up to $2,200.
Why these amendments?
The risk of fraud in conveyancing transactions is real and obviously of great concern. The requirement to verify identity is seen as an essential safeguard against fraud and improper dealings but just how well the amendments to the Act and its regulations will manage that risk is unknown.
It is expected that these will be the first in a series of amendments that are required in order to bring the legislation up to date and 'keep-up' with the increasingly sophisticated types of fraud.
For professional advice and assistance with conveyancing transactions contact one of our experienced Property Lawyers on tel: 02 9635 6422.
Conveyancing Fraud – New Regulations Aim to Reduce Risk
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