Lenders are increasingly considering options to facilitate the execution of loan documents. Conveyancing time frames and pandemic restrictions have certainly given lenders cause to think outside the box. So how does a lender safely offer their borrowers the ability to sign a loan package electronically? Can this be done for all loans? In all States and Territories?
In this article, we will explain the current laws and our recommendation for a safe execution of loan packages electronically.
Electronic execution laws
The starting point of our discussion must of course be the current electronic execution laws in existence in each State and Territory and what they permit.
Commonwealth
Although mortgage law is largely State-based, the execution by companies under section 127 of the Corporations Act 2001, which ensures enforceability, is subject to federal law.
There is currently in effect the Treasury Laws Amendment (2021 Measures No. 1) Act 2021 which permits the signing of documents by companies under section 127 electronically and by split execution. Execution is still required by either the sole director (for single director companies) or two directors or a director and the secretary (for multiple director companies) but these persons can sign separately by electronic signature at different times. Once all persons required have signed, the execution of the company takes effect under section 127, which affords each other party to the document the benefit of the assurance that the execution will be valid and binding.
Unfortunately, this legislation is temporary and is due to expire on 31 March 2022. However, watch this space, as the Federal Government has already tried once to make these measures permanent and will no doubt try again, we hope, before 31 March 2022.
State and Territory Legislation
Aside from the execution by companies under section 127 of the Corporations Act 2001, the methodology for execution of documents is subject to the laws of the State or Territory of jurisdiction. This will be the jurisdiction stated in the document, not necessarily where each party is located. For loan agreements, this may be where the Lender is located. For land mortgages, this will be where the property is located.
Victoria leads the pack by having made permanent its laws enabling electronic execution of deeds and agreements by both individuals and companies. Mortgages to be registered by PEXA may also be signed electronically. Remote witnessing of statutory declarations is also available.
Queensland has introduced laws that, similarly to Victoria, permit electronic execution of deeds, agreements electronically by both individuals and companies. PEXA mortgages may also be signed electronically and remote witnessing of statutory declarations is available. Unfortunately, these laws are only temporary and are set to expire on 1 May 2022, but the Qld Government is working to make them permanent.
New South Wales has been slow off the mark, unfortunately not having much in the way of electronic execution laws just yet. Although electronic execution of deeds by individuals is permitted, there is uncertainty as to whether this extends to companies. There is a pilot scheme in effect to permit video witnessing of documents including deeds, agreements and statutory declarations but this will expire on 1 January 2022.
Check with your solicitor the ability to electronically sign and witness documents in your State and Territory of jurisdiction as well as any updates that arise from time to time, as the nature of the current pandemic is that laws facilitating the execution of documents are always changing.
Updating loan documents for electronic execution
Although the ability to sign electronically is a matter of law and, in most cases, ought not to require anything, in particular, to be changed in the document, there are some changes we recommend you make to your loan documents for the purpose of electronic execution:
- Agreement to electronic exchange – we recommend that in each loan agreement, general security agreement, guarantee, and other document is contained the usual counterparts clause allowing execution of the document in counterparts. For electronic execution, this clause should be expanded to state that the document, or counterparts thereof, may be executed and will be valid and binding if executed by electronic signature in circumstances where the laws of the jurisdiction of the document permit, and that each party undertakes to ratify, on request, his or her signature of the document.
- Removal of witness signature and inclusion of acknowledgment – we recommend that in the section where each party is to sign the document the space for witnessing be eliminated (as it is no longer be required) and words be inserted to the effect that the party signing agrees to sign by electronic signature and that by affixing his or her electronic signature agrees to be immediately bound by the provisions of this document as though signed by him or her in wet ink.
Recommended signing procedure
It is important that when the execution of the loan package is made, certain matters are taken into account to ensure a safe and enforceable execution. We recommend the following execution procedure:
Step 1 – Choose an electronic execution software
It is recommended to use an electronic signing software controlled by the lender, rather than allowing persons to affix signatures using their own electronic execution systems. The software that you choose should contain protection mechanisms such as a PIN code and or other safety features which act to provide at least an initial presumption that the document was signed by the intended person.
Step 2 – Borrower to complete electronic contact details in the loan application.
We recommend that the borrower be asked to complete in their loan application the personal email address and mobile phone number for each person to sign. This will be the email and number to which to communicate the signing request and security PIN respectively. The contact details for each person should be independently verified by contacting each person. This is particularly important for guarantors who have not signed the loan application.
Never permit the same email address for multiple persons or accept sending a PIN number to a spouse's mobile phone. These circumstances may very well lead to the presumption that it was the spouse who executed the documents. Always consider what your software allows and introduce any additional measures that you see fit.
Step 3 – Obtain legal advice certificate
As legal advice should be received before a person signs the relevant document, if you are requiring legal advice certificates for guarantors for example, we recommend that a soft copy of the loan documents be provided to the guarantor's solicitor and the legal advice certificate be completed and returned before the electronic execution package is issued.
Step 4 – Send the signing request
When sending an electronic execution request, if the software allows, we recommend that the email request contains a message explaining of what is being sent, a recommendation to obtain legal advice, and a warning that the documents will be considered binding once signed electronically.
Different software services will provide varying features for additional persons to view or interact with the documents, which could include the borrower or guarantor's solicitors. This might avoid a dispute as to what documents have been signed or the need to separately provide the solicitor or their client a copy of the signed loan package (which is often forgotten).
Step 5 – Obtain wet ink signed mortgage
Although some jurisdictions permit execution of mortgages to be registered by PEXA electronically, we recommend that a wet ink mortgage be obtained in case it should be necessary to switch to a paper settlement or lodge the mortgage at the counter at a later date. Verification of identity of the mortgagor, which needs to be performed in connection with the mortgage execution, is also best achieved this way.
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.
