New requirements to ensure lenders to take “reasonable steps” to verify identity
By Nafsika Palbas
16 July 2015
On 24 September 2014 the Transfer of Land Act 1958 (Vic) was amended to introduce strict requirements for a lender to take “reasonable steps” to verify a borrower’s identity and authority before the execution, or variation, of a mortgage. These amendments apply to all mortgages under the current paper based system and also to those that will be registered electronically using the e-conveyancing system.
The amendments follow the lead of Queensland, New South Wales, South Australia and Western Australia, which have all implemented similar legislation requiring lenders verify identity. They aim to address instances where a fraudulent mortgage is registered as a result of a lender neglecting to verify that the person executing the mortgage is the same person as the owner of the land being mortgaged.
To satisfy the “reasonable steps” requirements a lender must either follow the standards set by the Victorian Registrar of Titles or take steps consistent with the Participation Rules as defined by the Electronic Conveyancing National Law (Victoria).
If a mortgage is fraudulent and the lender did not take reasonable steps to verify the borrowers identity and authority, the lender may lose the benefit of indefeasibility and the mortgage will be void (see Commonwealth Bank of Australia v Perrin  QSC 274). However, fraudulent mortgages could remain registered in certain circumstances, for example where the lender did take reasonable steps to verify identity but the fraudster used high quality forged identity documents that were undetected.
While many lenders will undoubtedly already have strict verification procedures, it is important that all lenders, whether they be institutional or private lenders:
- Review and update verification procedures; and
- Perform the verification requirements diligently; and
- Document the “reasonable steps” taken.
Failure to fulfil the new verification requirements can have serious ramifications for lenders. It would be prudent for lenders to obtain advice about what is required to comply with the new amendments.
Changes to the Foreign Resident Capital Gains Withholding Regime – effective 1 July 2017
By Nafsika Palbas
28 June 2017
Purchasing real estate by an SMSF and the implications from an Estate Planning perspective.
By Felicity Simpson
13 October 2014