Posts Tagged Mortgagor
Since 24 September 2014 a mortgagee in Victoria has been required to take reasonable steps to verify the authority and identity of a mortgagor to ensure that the person executing the mortgage, or on whose behalf the mortgage is executed, as mortgagor is the same person who is the registered proprietor of the land that is the security for the payment of the debt.
See: s.87A(1) of the Transfer of Land Act 1958 which was inserted into the Act by the Transfer of Land Amendment Act 2014.
The purpose of the new provisions is to protect the owners of land against fraud.
If the Registrar is satisfied that the mortgagee did not take reasonable steps and the registered proprietor of the land did not grant the mortgage the Registrar may:
- if the mortgage has not been registered, refuse to register the mortgage; or
- if the mortgage has been registered remove the mortgage from the Register.
If the mortgage is removed from the Register the mortgagee no longer has an indefeasible interest in the mortgaged land and the mortgage is void. See: s.84A(5).
A mortgagee is considered to have taken reasonable steps taken to verify the authority and identity of a person executing a mortgage if it has taken steps consistent with any verification of identity and authority requirements:
- determined by the Registrar under s.106A; or
- set out in the ‘participation rules’ within the meaning of Electronic Conveyancing National Law (Vic).
The Registrar has not yet made a determination under s.106A.
The ‘participation rules’ refer to a face to face interview in the case of an individual and the sighting of identification documents such as a passport, birth certificate, Medicare card, drivers licence. See: schedule 8 “Verification of Identity Standard”. Where the mortgagor is a company confirmation of the existence and identity of the body corporate by a search of ASIC’s records must be undertaken together with reasonable steps to establish who is authorized to sign or witness the affixing of the common seal. The identity of the person affixing the common seal must also be verified. There are also provisions for the establishing the identify and powers of attorneys acting on behalf of mortgagors.
Mortgagees should establish procedures to ensure that they can comply with the new requirements and also maintain records for the purpose of being able to prove that they have complied with the new procedures. It would also be wise to obtain advice about what is required to comply with the new requirements.
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Defaulting mortgagor borrowers defending court proceedings by the mortgagee lender often allege that the lender owed them a duty to investigate their income and assets and liabilities to determine whether the loan could be serviced. The legal basis for such a claim was recently rejected by the Supreme Court of New South Wales in Westpac Banking Corporation v Diagne  NSWSC 822.
Among the many claims made by the defaulting mortgagor borrowers was that the lender had a duty to “[prudently investigate the income, assets and liabilities of [the borrowers] and the proposed business plan of [the borrowers] in order to determine serviceability” and “[t]o take reasonable remedial action when the loans fell into arrears, including investigating the causes of the arrears, working with [the borrowers] to remedy the problems identified and continuing to monitor the ability of the borrowers and guarantors to adequately service the facilities”. Included in the alleged duty was a duty “to appropriately set and alter limits on overdraft facilities”.
Ball J rejected the borrower’s claims. His Honour applied Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd  AC 80 and held that the lender did not have a duty of care to investigate the borrower’s circumstances to determine whether the loan that was made was appropriate for them.
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