Upcoming Mallesons seminarsAll lenders taking real property mortgages in NSW.
What do you need to do?All entities taking security over NSW property should review their lending practices (particularly how they verify mortgagor identity), and their enforcement procedures.
Peter Butt
Legal Consultant
Felicity Savage
Partner
T +61 2 9296 2419
Sydney
Ken Astridge
John Canning
Sue Kench
The Real Property and Conveyancing Legislation Amendment Bill 2009 was passed by the NSW Parliament on 6 May 2009. The Bill makes important changes to the law regarding the execution of Torrens title mortgages in NSW. It is a response to the growing threat of mortgage fraud - in particular, "identity theft" - as well as the growing number of claims against the Torrens Assurance Fund arising out of forged mortgages. The Bill will commence on a date to be proclaimed.
Below is a summary of the important changes regarding mortgages:
Checking identity of mortgagor
1. Before presenting a mortgage for registration, the mortgagee must take “reasonable steps” to ensure that the “person” who executed the mortgage as mortgagor is actually the registered proprietor of the land, or is to become the registered proprietor (as in the case of a purchaser). Under the Interpretation Act, “person” includes a corporation, and so the new procedures will apply to corporate mortgagors as well as to individuals. (Regulations may prescribe what are “reasonable steps”. At present, no regulations exist.)
2. For seven years (or other prescribed period) after registration, the mortgagee must keep a written record of the “reasonable steps” the mortgagee took under 1 above, as well as a copy of any document the mortgagee obtained to comply with 1 above.
3. The Registrar-General may (at any time) require the mortgagee to answer questions about the steps the mortgagee took to comply with 1 above, and may also require the mortgagee to produce for inspection any records under 2 above.
4. If the mortgagee fails to comply with a requirement made under 3, and the mortgage has already been registered, the Registrar-General can make a recording to that effect in the Register. If the mortgage has not been registered, the Registrar-General can refuse to register it.
5. Significantly, the Registrar-General can “de-register” a registered mortgage if the Registrar-General considers that:
- The mortgage involved fraud against the registered proprietor, or
- The mortgagee failed to comply with 1 above, or had notice (actual or constructive) that the mortgagor was not the registered proprietor of the land.
6. The above procedures apply also to a transferee of a mortgage. That is, the transferee must take reasonable steps to ensure that the person who signed the mortgage as mortgagor was the registered proprietor.
7. Compensation from the Assurance Fund is not available to compensate a mortgagee (or transferee of a mortgage) whose loss arises from their failure to comply with any of 1 - 6.
Duty of a selling mortgagee
The Bill makes another important change, “codifying” the duty of a mortgagee when exercising a power of sale.
A mortgagee will have to “take reasonable care” to ensure that the land is sold for not less than its market value (at the time it is sold). If the land does not have an “ascertainable” market value, the mortgagee must “take reasonable care” to ensure that it is sold for “the best price that may reasonably be obtained in the circumstances”.