Article by Alison Deitz, Nino Di Bartolomeo and Helen Fielder
On 25 March 2009 the Real Property and Conveyancing Legislation Amendment Bill 2009 (Bill), was introduced into New South Wales Parliament. The Bill imposes duties on financiers, mortgagees and chargees exercising power of sale and in preventing identity theft and forgery of mortgage and title documents.
We summarise the implications of the Bill as follows:
Exercising Power of Sale
Higher duties for mortgagees
In exercising a power of sale in New South Wales, the Bill proposes to:
- impose a statutory duty on mortgagees and chargees in exercising a power of sale in relation to mortgaged or charged land, and
- require mortgagees and chargees to take reasonable care to ensure that land is sold at its market value or at least the best price that may reasonably be obtained.
Interestingly, the Bill does not require that the mortgagee or chargee ascertain the best price "when the property is sold". This is explained further below.
The implications
- In NSW, as the law currently stands relating to individuals, a mortgagee in exercising its power of sale must act in good faith and not act fraudulently, wilfully or recklessly or in disregard of the interests of the mortgagor. This is clearly a lower duty of care owed by the mortgagee than exists in Queensland and Northern Territory. The Bill does not go as far as the prescriptive requirements imposed by the Property Law (Mortgagor Protection) Amendment Act 2008 (Qld) or the Local Government Amendment (Independent Valuation) Bill 2002 (NSW).
- In relation to individuals, the Bill proposes a higher duty of care. However, the proposals are consistent with the duty of care already imposed under section 420A of the Corporations Act 2001 (Cth) ("section 420A") when dealing with corporations.
- There have been a number of cases involving the interpretation of section 420A. In the most recent case dealing with this section, Forston Pty Ltd v Commonwealth Bank of Australia [2008] SASC 49, the Full Court of the Supreme Court of South Australia set out important principles to assist in determining just what that duty is and what is meant by "market value".
- Section 420A does require the mortgagee to consider the best price available in the circumstances when the property is sold. However, section 111A(1) of the Bill omits the requirement to consider the best price available at the time when the land is sold, presumably to give the mortgagee or chargee some leeway in difficult market conditions or in areas where there are no comparable sales.
- Agents of mortgagees are also bound by the duty to take reasonable care.
- Prospective purchasers are protected against breaches of duty by the mortgagee, chargee or their agents.
Preventing identity theft and forgery of mortgage and title documents
Statutory duties imposed on mortgagees
In imposing duties in preventing identity theft and forgery of mortgage and title documents, the Bill proposes to:
- require mortgagees to take reasonable steps to verify the identity of the mortgagor before presenting the mortgage for lodgement; and
- require those who witness mortgage documents to have known the mortgagor for at least 12 months or to have taken steps to verify the identity of the witness.
The implications
Verify identity of mortgagor
In a conveyancing context in New South Wales a mortgagee has presently no statutory obligation to verify the identity of the mortgagor.
The Bill:
- imposes a statutory duty of care on mortgagees to take reasonable care to verify the identity of the mortgagor
- provides that a mortgagee will have taken reasonable steps to identify the mortgagor if the mortgagee has taken the steps set out in the regulations (to be prescribed). All lenders will need to ensure they adopt procedures to incorporate the required identification requirements as set out in the regulation to obtain the benefit of this protection.
- requires the mortgagee to keep a written record of the steps taken to identify the mortgagor and retain a copy of any documents associated with the verification of identity.
Under the Bill it is the mortgagee who has the statutory obligation to exercise a duty to take reasonable care to verify the identity of the mortgagor rather than a solicitor acting for the mortgagor (though the solicitor may be liable for professional negligence).
Witness to have known mortgagor for at least 12 months
The Bill imposes a duty on witnesses requiring them:
- to have known the mortgagor for at least 12 months prior to witnessing the mortgage documents, or
- at the very least, to have taken steps to verify the identity of the mortgagor.
There have been a number of cases involving identity fraud and the Bill seeks to codify the general law, illustrated in the recent case of Graham v Hall [2006] NSWCA 208 where the New South Wales Court of Appeal recognised that those who witness mortgage documents owe a duty of care to the borrower. The Court of Appeal in the Graham case found that the false attestations relating to the witnessing of a mortgage were "powerful factors tending to support the recognition of a duty of care owed by the witness to" the registered proprietor.
In the past mortgagees may have relied on mortgage brokers or solicitors acting for the borrower to provide identity documentation. However mortgagees must undertake their own due diligence and be satisfied that the person who claims to be the registered proprietor is in fact the registered proprietor.
For more information or advice on the Bill's implications, please contact us.
A copy of the bill can be found here.
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.