Australia: New rules for mortgagees and witnesses to land dealings in NSW

Last Updated: 25 October 2011
Article by Ross Rydge

Focus: New rules for mortgagees and witnesses
Services: Financial Services, Disputes & Litigation
Industry Focus: Financial Services

Mortgagees and parties witnessing land dealings should be aware that the following amendments to the Real Property Act 1900 commence operation on 1 November 2011:

Confirm identity of mortgagors

The new section 56C of the Real Property Act 1900 will require mortgagees to take "reasonable steps" to confirm the identity of persons signing mortgages as mortgagors.

The mortgagee will be considered to have taken reasonable steps to ensure the identity of a mortgagor if it has complied with the new Part 3A of the Real Property Regulation 2008. This provides that a mortgagee must either comply with the Anti-Money Laundering & Counter-Terrorism Financing Act 2006 (Cth) or, alternately, the provisions of Part 3A which essentially mirror that Act.

Broadly, from 1 November 2011, a mortgagee must:

  • collect from the person their full name, date of birth and address
  • verify that information against either one original primary photographic identification document (such as a driver's licence or passport), or two non-photographic identification documents (such as a birth certificate and a pension card), and
  • satisfy itself that the document/s have not been altered, that the information correlates and that the photograph is a true likeness of the mortgagor.

Mortgagees must keep records of the steps taken to comply with the section. A failure to comply with s56C may result in the cancellation of the registration of a mortgage if it is found that execution of the mortgage was fraudulent.

Witnessing land dealings

Section 117 of the Real Property Act 1900 has been amended to strengthen the requirements for persons witnessing the signing of a land dealing or caveat, to identify the person whose signature they are witnessing.

The new provisions require a witness to have either:

  • known the person signing the dealing or caveat for more than 12 months, or
  • taken reasonable steps to ensure the identity of that person.

The witness will be considered to have taken reasonable steps to ensure the identity of the person if the witness has taken the steps set out in the new regulation 16A of the Real Property Regulation 2008.

Broadly, Regulation 16A requires the witness to sight either an original primary photographic identification document (such as a driver's licence or passport) or two non-photographic identification documents (such as a birth certificate and a pension card) that confirm the identity of the person signing the land dealing.

Failure to comply with the new provisions may result in a fine of up to $2,200.

Mortgagee's obligations when exercising a power of sale

Finally, a reminder that the new section 111A of the Conveyancing Act 1919 also comes into effect on 1 November 2011.

Under the new section 111A, a mortgagee or chargee in exercising a power of sale in respect of land, must take reasonable care to ensure that the land is sold for no less than its market value. Alternatively, if it is not possible to ascertain the market value, the best price that may reasonably be obtained in the circumstances can be used.

This new provision broadly mirrors the provisions of section 420A of the Corporations Act 2001, which apply to Controllers.

Note that the new provision applies to an agent appointed by a mortgagee or chargee and only applies to a sale arising as a consequence of a default occurring after the commencement of the section on 1 November 2011.

A person who suffers loss or damage as a result of a breach of the duty will have a remedy in damages against the mortgagee or chargee exercising the power of sale or selling the land.

The above amendments have been effected by the Real Property and Conveyancing Legislation Amendment Act 2009 and the Real Property Amendment Regulation 2011.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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