NSW: Mortgage identification requirements will commence 1 November 2011 – be prepared

By Amy Harper

The Real Property and Conveyancing Amendment Act was passed by Parliament in 2009 but not all sections commenced immediately. It amended the Real Property Act in respect of mortgagor identification obligations. On 1 November 2011 the remaining sections will commence, along with the Real Property Amendment Regulation. Lenders, brokers and their legal advisers must comply with the new requirements or face the Registrar General refusing to register their mortgage.

Fraud prevention

Following an increased incidence of fraudulent mortgages being registered, a greater onus is being placed on mortgagees to ensure the identity of mortgagees at the lending stage.

Mortgagees failing to meet the identification obligations risk significant consequences, including the potential cancellation of the mortgage in certain circumstances.

Mortgagees need to put their policies in place now to ensure that their mortgage security is not compromised.

Confirming identity of mortgagor – taking reasonable steps

Before presenting a mortgage for lodgement, the mortgagee must take 'reasonable steps' to ensure the person who executed the mortgage as mortgagor is the same person that is or will become the registered proprietor of the relevant land.¹

'Reasonable steps' for the mortgagee to take for identification varies depending on whether the mortgagor is a person, a body corporate, or undertaken under a power of attorney. These steps are now specified under the Regulation.²

Mortgagors who are natural persons

Mortgagees must collect from the mortgagor their full name, date of birth and residential address.³ It is now also the responsibility of the mortgagee to confirm these details from either an original or certified copy of a primary photographic identification document; or an original or certified copy of both a primary non-photographic identification document and a secondary identification document (see list below).⁴

The mortgagee must determine that the photograph contained in the document is a true likeness of the mortgagor.

Mortgagors who are bodies corporate

Where a mortgagor is a body corporate, the mortgagee must collect from the body corporate:

• their registered name with the Australian Securities and Investments Commission (ASIC) or relevant registration body;
• the address of their registered office and principal place of business in Australia (if they undertake business in Australia);
• the ACN, ABRN or other relevant registration number of the body and their registration status; and
• the name of all directors and the secretary, or if incorporated, the chairperson, secretary and treasurer.⁵

These details must be verified by a search of the body corporate on the ASIC database or other relevant registration body made within the previous 30 days.⁶

Mortgages executed under a power of attorney

When a mortgage is executed under a power of attorney, the same requirements of identifying the mortgagor exist, based on whether they are a natural person or a body corporate stated above.

One additional obligation exists where executed under a power of attorney, and that is to verify from the power of attorney that execution of the mortgage is valid under the specific power.⁷

Identification documents

The documents that need to be used in verifying the information about the mortgagor or any attorney are listed in the Regulation.⁸ These are categorized as primary non photographic identification (such as birth or citizenship certificates), primary photographic identification (such as drivers licences, passports or national identity cards) and secondary identification documents (such as Medicare or ATO notices).

In verifying information from these documents, the mortgagee should be satisfied that:

• the documents are legible;
• do not appear to have been tampered with or altered, and
• that there is no apparent discrepancy between the information provided by the mortgagor and the identification documents.⁹

Any documents used in identification are also not to have expired except in the case of an Australian passport that has been expired for less than 2 years.¹⁰

Witnesses to mortgage execution

Witness certification on documents lodged for registration will now have more stringent requirements. The executing witness must:

1. be over the age of 18;
2. not be a party to the dealing; and
3. have known the relevant person for more than 12 months, or have taken reasonable steps to ensure the identity of that person as defined by the Regulation.¹¹

Record-keeping requirements

Mortgagees must keep a written record of the steps taken by them in identifying the mortgagor and copies of any documents obtained by them in complying with the identification requirements. These records must be kept by the mortgagee for a period of 7 years from the date of registering the mortgage.¹²

Consequences of failure to comply

The identification records required to be retained may be requested by the Registrar General at any time and questions about the information may be sought.¹³ Any compliance failures may result in the Registrar General refusing to register the mortgage or if already registered, making a notation in the Register to that effect.¹

Suggested practice

Mortgagees should ensure that there are adequate procedures in place to ensure that:

• all borrowers, mortgagors and guarantors provide at least 100 points of identity documentation;
• legal and accounting independent advice declaration are complete and accurate and attach a copy of the identification documents sighted;
• loan and mortgage documents are appropriately witness (including full address) in accordance with the new requirements, even if they are not to be registered;
• adequate policies are in place to ensure the secure retention of documents – which may involve the identification documents being treated with the same importance as the security documents themselves and stored together.

Kells the Lawyers acts for many lenders and mortgage brokers. Our mortgage team provides a complete service solution to our clients, including:

• loan securitisation and documentation;
• acting in enforcement proceedings, including those involving complex issues of fraud and unconscionable conduct; and
• acting on conveyancing matters for lenders exercising their power of sale, including dealing with caveatable interests and providing advice on GST issues.

Footnotes

¹ new s 56C of the RPA.

² s 11A of the Regulation.

³ s 11B(1) of the Regulation.

⁴ s 11B(2) of the Regulation.

⁵ s 11C(1) of the Regulation.

⁶ s 11C(2) of the Regulation.

⁷ s 11D of the Regulation.

⁸ Schedule 1 of the Regulation.

⁹ ss 11B(3) and 11C(3) of the Regulation.

¹⁰ s 11B(4) of the Regulation.

¹¹ new ss 117(4) and 117(5) of the RPA.

¹² new s 56C(3) of the RPA.

¹³ new s 56C(4) of the RPA.

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.