Real Property and Conveyancing Legislation Amendment Bill 2009

The Real Property and Conveyancing Legislation Amendment Bill 2009 was introduced into the New South Wales Parliament on 24 March 2009.  The Bill deals with a number of issues relating to title and the mortgage of property in New South Wales. 

How the Bill will affect Financiers

Of particular relevance to both bank and non-bank financiers, the proposed amendments to current legislation will:

• impose greater onus on mortgagees to identify persons offering real property as security by introducing a statutory requirement to confirm the identity of the owner/mortgagor with the threat that a mortgage may be refused registration or removed from the register in the case of non-compliance;
• amend the requirement for witnesses to dealings with land; and
• create a statutory obligation in exercising the power of sale that a property should be sold for no less than its market value.

The Amendments

Confirmation of Identity

The Bill proposes the insertion of a new section 56C into the Real Property Act 1900.  The legislation is in similar terms to that already operating in Queensland.  This section will require mortgagees to take reasonable steps to confirm the identity of the mortgagor before presenting a mortgage for lodgement.  A mortgagee will be considered to have taken those reasonable steps if it has followed the steps set out in the regulations (which are yet to be prescribed).  A mortgagee must keep a written record of the steps taken to comply with this requirement and copies of any associated documents.

In order to determine whether the mortgagee has complied with the proposed section, the Registrar-General may require the mortgagee to answer questions and produce specific documents. 

If a mortgagee fails to comply with the identification requirements the Registrar-General may:

• refuse to register a mortgage which is lodged for registration;
• cancel the registration if the execution of the mortgage involved fraud against the registered proprietor of the mortgaged land.

The Registrar General may also cancel the registration of a mortgage if the mortgagee has complied with the identification requirements but had actual or constructive notice that the mortgagor was not the same person as the owner of the land.

The proposed section 56C will also apply to where the mortgagee/financier has taken a transfer of the mortgage but the original mortgagee failed to follow the steps prescribed. 

Under the Real Property Act compensation may be available to a party which loses the benefit of its interest in land because of fraud.  The Bill provides that compensation will not be available to any mortgagee who suffers loss or damage where the loss or damage is a consequence of its failure to comply with the proposed section 56C. 

The proposed section 56C, will not apply to mortgages accepted for lodgement before the new section commences.

Eligible Witnesses

The Bill proposes a change to the current requirement for an eligible witness to the execution of applications, dealings or caveats relating to land in New South Wales.  It is proposed that the witness must:

• be at least 18 years of age; and
• have known the person whose execution of the document the witness is attesting for more than 12 months (or, alternatively, have taken reasonable steps to ensure the identity of that person); and
• not be party to the application, dealing or caveat.

Currently, a witness is only required to be personally acquainted with, or satisfied as to the identity of, the person executing the document.  One issue which is not clear from the Bill is whether an officer of a financier/mortgagee could be deemed to 'be party to the application, dealing or caveat'. 

Duties of mortgagees in exercising a power of sale

Where a mortgagee is authorised and proposes to exercise a power of sale by selling mortgaged property, the Bill (proposed section 111A of the Conveyancing Act) proposes to impose a duty that the mortgagee take reasonable care to ensure that the land is sold for:

• not less than its market value; or
• the best price that may reasonably be obtained if the land does not have an ascertainable market value.

The proposed section will apply to an agent appointed by a mortgagee or chargee to sell the land in the same way as it applies to a mortgagee or chargee.  A person who suffers loss or damage as a result of the breach of the duty imposed by the proposed section will have a remedy in damages against the mortgagee or chargee exercising the power of sale.

The duties imposed by the proposed section will extend to all mortgages and charges.  The duties imposed by the proposed section closely mirror duties already in place in similar Queensland legislation and those imposed on a controller in exercising power of sale under the Corporations Act 2001 where the registered proprietor of the land is a corporation.

The legislation varies from existing Queensland legislation which further provides, for example, that except in exceptional circumstances the sale of property by a mortgagee must be by way of auction.  Mortgagees should now consider, and should properly record, the steps to first ascertain the fair market value of property and the basis on which the property is to be sold to best achieve that value.