PEXA

eConveyancing – Changes to the Model Participation Rules

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During 2019, the Australian Registrars’ National Electronic Conveyancing Council (ARNECC) consulted on proposed changes to the rules governing electronic conveyancing in Australia – referred to as the Model Participation Rules (MPR) and the Model Operating Requirements (MOR).

One aspect of the proposed changes to the MRP that caused great consternation amongst practitioners was the proposal to require everyone to adopt the verification of identity standard (VOI Standard) when identifying parties to a conveyancing transaction and remove the option for Subscribers (lenders, lawyers and conveyancers) to verify identity by taking “reasonable steps”.

Strong representations were made by industry with regard to this proposed change, especially lenders who generally have their own processes to verify identity, often electronically and incorporating Anti-Money Laundering (AML) requirements at the same time.

The release by ARNECC on 9 October 2020 of a further consultation draft on the proposed changes makes it clear that ARNECC has abandoned that proposal.

The net effect is that the status quo prevails and Subscribers can verify identity either:

  • by applying the VOI Standard, or
  • in some other way that constitutes the taking of reasonable steps.

Of course, persons who are identity agents such as Australia Post and Zip ID will still have to verify in accordance with the VOI Standard – as they do currently. Identity agents will not apply the reasonable steps standard as what would be “reasonable” depends on the particular circumstances. Identity agents are not in a position to be able to make this assessment due to their lack of knowledge of the person being identified.

The other proposed changes to the MPR and MOR are generally not contentious, although will involve a change to the client authorisation form that is required to be completed by the client in order to authorise Subscribers to sign and transact on electronic conveyancing platforms such as Property Exchange Australia (PEXA).

The consultation period on the draft MPR and MOR closes on 6 November. It is proposed that the changes will take effect from March 2021.

National Mortgage Form About to be Rolled Out

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The development of the National Mortgage Form (NMF) by the Australian Registrars National Electronic Conveyancing Council (ARNECC) has been in development for many years. It is hoped the implementation of the NMF will simplify the process for obtaining a mortgage. It disallows financial institutions from using their own forms, which can vary widely between institutions. From late May 2017, at least in New South Wales and Victoria, the NMF will be able to be used for transactions involving paper mortgages.

Existing registered Memoranda of Common Provisions may still form part of the terms and conditions of the mortgage by stating the document reference in the applicable panel on the NMF.

The rollout of the NMF for electronic mortgages is taking place at a slightly later date to coincide with the release by PEXA of new versions of its operating procedures and guidelines.

Following the introduction of the NMF, there will be a transition period from late May 2017 to the end of December 2017 during which period paper mortgages can either be lodged in the new form or via existing approved forms. From 1 January 2018, all paper mortgages signed on or after that date must be lodged in a format using the NMF.

Full Steam Ahead to Implement an Electronic Environment

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Some time ago the Registrar of Titles in Victoria published a paper dealing with the requirements for paper conveyancing transactions in the state. Version 2 of the registrar’s requirements were published in March 2017 and notification has recently been given that Version 3 of the Registrar’s requirements will become operational on 27 May 2017.

Throughout Australia, there is a move towards 100% digital lodgement. In Victoria, this is part of the Victorian Government’s digital strategy. After consultation with stakeholders, the requirements and timelines for transitioning to 100% digital lodgement have been agreed. A summary of the agreed requirements and timelines is set out below. Generally, this timeline applies to conveyancers and lawyers acting for a party or themselves and PEXA subscribers.

NMF Rollout Calendar

26 May 2017

  • National Mortgage Form to be implemented
  • Client authorisations required for paper conveyancing
  • Certificates required for paper conveyancing, including those for mortgages under section 74(1A) of the Transfer of Land Act 1958
  • There will be a transition period for implementation of the National Mortgage Form, client authorisations and certifications from 26 May to 31 December 2017.

July 2017

  • A second bulk conversion of paper Certificates of Title to electronic Certificates of Title (eCT) will be undertaken.

1 August 2017

  • Commercial mortgages, refinance transactions (including commercial mortgages) to be lodged electronically where the mortgagee(s) is an ADI.
  • ADI refinances mandatory on PEXA.
  • Functionality for other property transitions will be available in PEXA.

1 December 2017

  • Stand-alone caveats and withdrawals of caveat to be lodged electronically.
  • Non-ADI stand alone discharges of mortgage, stand-alone mortgages, and refinance transactions are to be lodged electronically.

1 January 2018

  • The transition period for mortgage (NMF), client authorisations and certifications ends.

1 March 2018

  • All survivorship applications, transmission applications and stand-alone transfers must be lodged electronically.

1 October 2018

  • All combinations of transactions available in PEXA to be lodged electronically.

1 August 2019

  • All transactions to be lodged electronically.

The exception will be when there is an existing paper instrument that has been signed prior to the date when electronic lodgement of that particular class of instrument or transaction is required. Further information can be found at Land Use Victoria’s Customer Information Bulletin 163.

Land Titles Become Computerised

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The land title system is becoming computerised in a bid to simplify the management of land transfer and mortgage data for consumers, business and government.  This article looks at how these major changes will affect the land title system.

How “electronic conveyancing” works

The core of the new process will be similar to how tax agents prepare an electronic tax return for clients. The tax agent prepares a paper tax return which their clients sign. The tax agent then sends an electronic representation of the tax return to the tax office, certifying that the tax return has been signed by the client.

A purpose built national system – Property Exchange Australia (PEXA), will lodge data with the titles offices in each Australian state and territory electronically, replacing paper documents.

PEXA will allow lawyers, licenced conveyancers, regulated financiers and government authorities (called ‘subscribers’) to send electronic data certified as correct to the Titles Office. On receipt of the data, the Titles Office will change its title register to reflect the change of registered proprietors or changes to legal estates and interests in land.

In summary, PEXA will allow subscribers:

  • who are lawyers or conveyancers to sign and electronically lodge their clients’ land title transfers, mortgages, discharges/releases of mortgages and caveats for registration at the titles office;
  • who are financiers to sign mortgages and discharges of mortgages on their own behalf, and for their customers if they certify that the customer has signed a paper mortgage or discharges;
  • to simultaneously settle and complete the transaction by paying and receiving all the financials of the conveyancing transaction including paying stamp duty, registration fees, unpaid council and water rates and land tax.

The system will not be used to complete the other aspects of conveyancing; like title investigations, vendor disclosure statements, contract preparation and negotiation, contract signing, payment of the deposit or calculation of outgoing adjustments and physical delivery of keys. Key changes

The major differences between the new PEXA system and the current paper system are:

PEXA requires a formalised client identification process. This is in place of the current systems that require or provide paper certificates of title on request. Some jurisdictions currently require an official paper certificate of title before the Titles Office registers a change of proprietor of the land or a mortgage on the title. The identification process is likely to be extended to the existing paper system.

The subscriber is required to electronically “sign” the transaction data they send as correct. This is the equivalent of ‘signing’ on behalf of the client the paper documents currently known as the transfer of land, mortgage, discharge of mortgage/release, caveat and withdrawal of caveat.

Subscribers

Subscribers who are lawyers or conveyancers must hold professional indemnity and fidelity insurances. The subscribers will either represent clients or act in their own right. This means that lawyers and conveyancers will generally act as agents for their clients for transfers of land. Financiers will only act for mortgages and discharges of mortgages on their own behalf but will certify that their customer has already signed a paper mortgage.

Only those who qualify as subscribers will have access to the system to ensure the quality and integrity of the data. This is similar to the way that only stockbrokers are able to transfer company shares through a stock exchange.

Expected rollout date

A majority of land titles offices with the exception of the Australian Capital Territory are now rapidly moving towards a computerised system. The ACT is likely to be the last mainland jurisdiction to adopt the system as most ACT land titles are not the usual freehold title form of ownership.

PEXA have already lodged the first electronic transactions for mortgage documents. The Commonwealth Bank was the first bank to conduct the transactions. The National Australia Bank is expected to be the second bank.

The ability to conduct transfers of land in the system is expected to be rolled out from the second half of 2014.

Implications for clients, financiers and lawyers

Clients may find the identification process troublesome and time consuming. Similar to a passport application, a client may need to visit either the post office or their lawyers’ office, and possibly their bank, to be identified. However, this is just a once off process.

  • Individuals who attest the sealing of company documents or similar authorisations will also need to be identified.
  • Commercial clients with a large number of transactions will benefit as they are only required to be identified once every two years.

Companies which operate nationally will gain efficiencies from adopting a national system. In particular, it will be easier for financiers and individuals who buy or sell land in one state and finance the transaction in another state.

However, land laws remain state-based and contracts for sale and vendor disclosure will still be different in each state or territory.

Smaller low volume operators, like small legal firms or conveyancing firms may find the new system too difficult or administratively burdensome to continue their conveyancing transactions. The larger and more specialised operators will become larger, more focussed and more specialised in delivering conveyancing services.

There will be opportunities for commercial property clients to integrate their electronic systems with Hunt & Hunt’s systems to provide a more seamless and faster conveyancing process.

The system is likely to be used for data matching by state and federal revenue authorities.  The State Revenue Offices are seeking more data matching to capture information for land tax aggregation purposes. The previous federal government recently authorised the Australian Tax Office to spend approximately $77 million on better data matching to identify transactions with potential capital gains, and possibly GST, implications.