On 21 August 2006 the first ever electronic lodgement of a discharge of mortgage occurred in Victoria.
Victoria is piloting electronic conveyancing. At this stage the proposals are limited to electronic settlements and the rest of conveyancing practice will remain unchanged.
The Victorian Department of Sustainability and Environment have released consultation drafts of documents relating to this Electronic Conveyancing System (EC System). Submissions were invited by 17 November 2006. The discussion documents are available at click here...
The Victorian system is conducted outside the National Electronic Conveyancing System (NECS) Steering Committee. Victoria recognises that NECS needs to conduct a comprehensive evaluation of the Victorian EC System to make a decision on whether the Victorian EC System is suitable nationally. It is likely that the Victorian system will provide a base for any national model developed by NECS and so it is important that the mortgage industry throughout Australia monitors the proposals.
Stage 1 pilot called e-Lodge involves using electronic documents and lodging them for registration electronically. Stage 1 has commenced trials and will continue throughout 2007.
Stage 2 pilot called e-Settle adds e-payment of the settlement money to e-Lodgement. When this occurs in the second half of 2007, Victoria will become the first conveyancing system in the world to include electronic financial settlement. The financial settlement includes electronic payment of stamp duty.
Gadens Lawyers is the only law firm participating in the pilot scheme. This is important for the industry to enable us to ensure that the system will work well for lenders who outsource document preparation.
Key Issues For The Mortgage Industry
Forefront in the mind of finance industry is:
- will the new system increase or reduce the chance of fraud?
- will the new system create a bias in favour of certain sectors of the industry?
- will the new system save time and cost and reduce the risk of error?
There are significant problems for lenders using outsourced solutions in the current proposals. These have the potential to put non-bank lenders and lenders who outsource at a significant disadvantage. It is unlikely this result is intended and we will be lobbying to create a level playing field.
Owners and mortgagees deal with the EC System through Subscribers. Subscribers will typically be lawyers and lenders who handle their own documentation.
A Subscriber can authorise one or more individuals to use the EC System. There are three user levels.
- Authorised Users who can view and change information but cannot sign documents unless they are also an Authorised Signatory.
- Authorised Signatories who can electronically sign documents. Each Authorised signatory has their own digital certificate for signing electronically.
- Administrators who can change their Subscriber's Authorised Users, Authorised Signatories, and Administrators. An Administrator must also have their own digital certificate for signing.
Clients arrange for a Subscriber to act for them by entering into a Representation Agreement with the Subscriber.
How A Transaction Progresses
- All parties to the proposed transaction must agree to use the EC System.
- If the title deed is a paper certificate of title (pCT), it must be converted to an electronic certificate of title (eCT). It will be important that conversion is a simple process, so that conversion does not delay the discharge of mortgage process. Delays in discharge settlements are the subject of much complaint.
- Subscribers must obtain express instructions from the Client whether a pCT is required. The default position will be that there will be an eCT.
- One of the parties creates an Electronic Lodgement File – an ELF.
- Other participating Subscribers then enter into the ELF information necessary for the transaction.
- The participating Subscribers must nominate a Responsible Subscriber who is primarily charged with dealing with queries from the Land Registry in relation to the transaction.
- The EC System generates electronic documents. These are initially withdrawal of caveats, discharge of mortgage, transfers, and mortgages.
- The e-Documents are signed by the Subscriber on behalf of a Client. The e-Document signed by the Subscriber on behalf of a Client becomes the operative document. It is likely that Subscribers will require mortgagor Clients to sign a paper copy, or at least specifically agree to the terms of the mortgage (rather than just have a general authority to sign a mortgage irrespective of its form). However, as Representation Agreements operate similarly to a power of attorney authorising the Subscriber to sign on behalf of the Client, there is no need for a paper counterpart.
- Subscribers can choose on a deal-by-deal basis whether to:
- e-Lodge, under which duty and fees are paid electronically but not the purchase price; or
- e-Settle – allowing electronic financial settlement as well as lodgement.
One of the Subscribers is the Controller of a CT. Usually this will be:
- the Subscriber representing the first mortgagee (which may be the first mortgagee itself if it handles its own conveyancing) where there is a mortgage on the title; or
- the Subscriber representing the owner where there is no mortgage ; or
- a third party who is a Subscriber and is nominated as the Controller of CT (eg a Subscriber on behalf of a trustee company, or a trustee company itself).
The Controller is required to nominate that the eCT may be used for each specific transaction.
Responsibility Of Subscribers
Subscribers are responsible for everything their Authorised Users, Authorised Signatories, and Administrators do, even if they exceed their authority or act fraudulently. If an Authorised User or an Authorised Signatory authorises another individual to use their digital signature, the Subscriber is bound.
However, if a third party fraudster uses a Subscriber's digital signature, the Subscriber is not liable unless the Subscriber failed to protect its digital certificates.
Accordingly Subscribers may be concerned to ensure that the other Subscribers in a transaction are genuine and that a digital signature is not being used fraudulently.
There are two types of Representation Agreements.
- Specific Authority for a single transaction.
- Standing Authority – for a number of transactions (eg. a lender appoints a law firm to document a number of loans).
An explanatory brochure is to be given by Subscribers to their Clients explaining how the system works.
Identification Of Clients
Subscribers are required to identify their Clients (including officers of companies and attorneys) prior to acting under a Representation Agreement.
If the subscriber is or is representing a mortgagee on a discharge, the Subscriber must identify the mortgagor. Gadens Lawyers is seeking an explanation why mortgagor identification is required in connection with discharges.
Where a Client has already been identified by a Subscriber, (for example a lender has already conducted a 100 point check), no further identification is required.
The current proposals have the potential to create a significant bias in favour of lenders who document their own mortgages. This is because Subscribers (usually law firms) acting for lenders who outsource mortgage preparation will need to identify mortgagors when documenting new loans and when documenting discharges.
We will be making submissions with a view to removing this bias to provide a system that works well for outsourcing.
An individual or a company can act through a power of attorney in which case the attorney must be identified.
Subscribers need to take out insurance to participate in the EC System. However, ADIs will not be required to take out insurance nor will lawyers be required to take out any further insurance.
Gadens Lawyers and the MIAA have made a significant submission on the proposals.
By Jon Denovan
t (02) 9931 4927
t (02) 9931 4753
t (03) 9617 8596
t (03) 9252 2508
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