Step 3 – Legal Due Diligence

The next step is for Bransgroves Lawyers to perform legal due diligence. This involves the Partner and the Counter signing Partner scrutinising:

1. the searches
2. the executed documents and
3. the verification of identity

Some of the legal due diligence performed is determined by the outcome of searches, for example if a search reveals that a property is held on trust then requisitions are made and searches performed in relation to that trust.

Some of the legal due diligence performed is determined by the scenario. For example if the advance funds are to be used to pay a debt, or buy equipment, then enquiries are made to determine the veracity of those purposes and to ensure the money is going to go where it is supposed to go.

Legal due diligence focuses on:

1. Ensuring good title to the security is obtained;

2. Ensuring the security is the correct property;

3. Ensuring there is no identity theft fraud;

4. Ensuring there is no fraud on the outgoing mortgagee;

5. Ensuring there is no fraudulent misappropriation of the advance funds;

6. Ensuring there is no corporate hijack fraud;

7. Ensuring there is no priority fraud;

8. Ensuring there are no mistakes.

Each State in Australia has legislation which requires Mortgagees to take reasonable steps to ensure that the person who signs the mortgage form is the same person who is, or is to become, the Registered Proprietor of the land, see for example s56C Real Property Act 1900 (NSW). If the Mortgagee fails to take such reasonable steps and the transaction involves fraud, then the Land Titles Office can remove the Mortgage from the Land Titles Register and the Mortgagee loses its Security. This is now effectively an exception to indefeasibility.

A Mortgagee will be deemed to have taken reasonable steps if it complies with the VOI Standard. The VOI Standard is not compulsory and a Mortgagee may rely on reasonable steps instead. However, if the Mortgage were ever challenged in court proceedings, then the Mortgagee would need to prove that they had taken reasonable steps and whether they had or not would depend on the specific circumstances of each Loan.

Bransgroves therefore always aim to comply with the VOI Standard on every loan. If a Mortgagor does not have sufficient identity documents to meet any category of the standard then or Partners advise the lender what steps can be taken to solve thr problem.