New ID law means mortgages could be void

24 September, 2014
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Strict requirements for mortgagees to take positive steps to verify the identity of borrowers were introduced in Victoria on 24 September 2014.

Similar requirements are already in place in Queensland, New South Wales, South Australia and Western Australia.

The Transfer of Land Amendment Act 2014 (Vic) received Royal Assent on 23 September 2014 and commenced the following day.  It amends the Transfer of Land Act 1958 (Vic) to require a mortgagee to properly verify the authority and identity of a mortgagor by taking ‘reasonable steps’ before the execution or variation of a mortgage.

A mortgagee is able to satisfy the onus by either following the standards set by the Registrar or the participation rules as defined by the Electronic Conveyancing National Law (Victoria).  In the event a fraud has been committed and reasonable steps were not taken to verify identity the lender will lose the benefit of indefeasibility and the mortgage will be void.

This amendment addresses situations where lenders do not confirm they are dealing with the registered proprietor.  The Explanatory Memorandum notes that a fraudulent mortgage will be void if the mortgagee did not adequately verify authority and identity.  However, fraudulent mortgages could remain registered in certain circumstances, for example where the mortgagee did take reasonable steps to verify identity but the fraudster used high quality forged identity documents that went undetected.

Consequently, any practitioner acting for a lender taking out a mortgage over Victorian land, whether they are institutional lenders or private client lenders, should advise their client of the new requirements to verify identity of mortgagors, the need to document the steps taken and the risks if they fail to do so.

For examples of mortgage fraud claims LPLC has seen in the past see Chapter three: Mortgage fraud, Managing Mortgage Risk

For more information on acting for lenders see:

  1. LPLC blog on Bank of Western Australia Ltd v Abdul & Anor
  2. LIJ article Don’t forget the valuer
  3. LIJ article Security Alert