On 1 March 2016, certain amendments came into effect in relation to how a mortgagee may take “reasonable steps” to verify the identity of a mortgagor before the relevant mortgage documents are lodged for registration. Paul Cullen from our banking team prepared a summary of the effect of these amendments, here.
It has now been more than a month since these amendments came into effect, so we thought we would share some of our initial observations on the Verification of Identity (VOI) processes in practice.
We have encountered several mortgagors, and solicitors acting for mortgagors, who have not yet become comfortable with the new VOI processes. It is a new process and some getting used to is expected, however, where the form of VOI documentation has to be negotiated at length or where the person acting for the mortgagor/borrower refuses to sign the VOI documentation, financing transactions may be delayed and/or become more costly for the borrower/mortgagor.
As noted by my colleagues, under section 11A(3) of the Land Title Act and clause 288A(3) of the Land Act, the mortgagee will be seen to have taken reasonable steps to identify a mortgagor if it complies with practices included in the Land Title Practice Manual for the verification of identification of mortgagors.
It is important to understand that a failure to take such reasonable steps in identifying a mortgagor may not only affect the enforceability of a mortgage (where it transpires that a mortgage was fraudulently executed), but it may also lead to the mortgagee being liable for a civil penalty of up to 20 penalty units. It is therefore of central importance to a mortgagee that reasonable steps are being taken, and our view is that the simplest way of ensuring this is done is by following the practices included in the Land Title Practice Manual.
While other alternative approaches of verifying a mortgagor’s identity may be appropriate in certain circumstances, such approaches are always subject to the mortgagee and its legal advisors being comfortable with these (and most of the time such alternative approaches are unlikely to be quicker or cheaper than following the processes set out in the Land Title Practice Manual).
We are aware that some financiers are taking the view that their initial customer identification process (for “KYC” purposes) is sufficient but, as a general proposition, we do not share this view. While we acknowledge that it is an inconvenience and a potential additional cost to the mortgagor/borrower to undertake a separate VOI process, it is an important protection from the financier’s point of view.
For more information, please get in contact with our Finance team.