Combating Identity Fraud

There have been recent legislative changes in most States (Qld, NSW and Victoria) requiring mortgagees to take reasonable steps to ensure that the person who signs a mortgage is in fact the person who is or is about to become the registered proprietor. Such steps in NSW require mortgagees to meet the identification procedures under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) such as the satisfaction of a 100 point identification verification. This is a significant change to indefeasibility of title as we know and increases the risks of fraud to lenders.

It was against this background, that Commonwealth Bank of Australia v Perrin [2011] QSC 274 was decided in favour of the mortgagor, whose husband forged her signature on a mortgage and guarantee. In that case, the bank lent over $10 million to a one-time multimillionaire, Mr Matthew Perrin, ex-CEO of the clothing store Billabong, on the security of the matrimonial home solely in his wife’s name. The wife claimed that the mortgages and guarantees in her name were forged by her husband and she was unaware of the transactions and applied for an order under section 187 Land Title Act 1994 (Qld) for their removal from the register. The court found that the husband had gone to extraordinary lengths to forge a power of attorney purportedly signed by the wife by superimposing her signature from a school document. Further the court found that the mortgages had not been authorised or ratified by the wife.

The lender lost the benefit of indefeasibility. It conceded that it failed to take reasonable steps to ensure that it was the wife who executed them, as required by section 11A and 11B of the Land Title Act 1994 (Qld) (the NSW equivalent being section 56C of the Real Property Act 1900 (NSW)). The bank tried several arguments not to lose indefeasibility, one of which sought payment of some contribution by the wife. The court however found that its power to rectify the register and make orders it considers just does not empower it to affect the interests of a registered proprietor where the bank has no indefeasible title.

NSW Legislation

Lenders must therefore be careful to comply with s56C(1) of the Real Property Act 1900 (NSW) by taking “reasonable steps” to ensure that the person who executed the mortgage as mortgagor, or on whose behalf the mortgage was executed, is the same person who is, or is to become, the registered proprietor of the land. Furthermore, the Registrar-General may ask questions and request to inspect records of the steps taken (s56C(4)) and it is the failure to respond to those requisitions that will result in a refusal to register or reject the mortgage. Therefore, circumstances could arise where a failure to respond results in a mortgage being refused or the mortgage cancelled. The mortgage can also be cancelled where the Registrar-General is of the opinion that the execution involved fraud against the registered proprietor or had actual or constructive notice that the mortgagor was not the same person as the person who was, or was about to become, the registered proprietor of the relevant land.

The result is that lenders risk losing indefeasibility if they fail to detect fraud.

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