REAL PROPERTY AND CONVEYANCING LEGISLATION AMENDMENT BILL 2009
Agreement in Principle
Debate resumed from 25 March 2009.
Ms KATRINA HODGKINSON
(Burrinjuck) [12.48 p.m.]: I lead for the Opposition in relation to the Real Property and Conveyancing Legislation Amendment Bill 2009. I state at the outset that the Opposition will not oppose this legislation. The Opposition has, as usual, consulted very widely and broadly on this legislation. Some of the parties that it has consulted include the Law Society of New South Wales, the Real Estate Institute, the New South Wales Business Chamber and the Property Council of Australia. The overview of the bill serves:
(a) to reaffirm the principle of indefeasibility of title as contained in section 42 of the Real Property Act 1900
(b) to facilitate the removal of abandoned easements,
(c) to introduce additional identification requirements to the Real Property Act 1900
in relation to mortgagees and witnesses,
(d) to limit the amounts recoverable from the Torrens Assurance Fund and the circumstances in which compensation will be available and make other miscellaneous amendments in respect of compensation, the Torrens Assurance Fund, the obligations placed on claimants and subrogation rights,
(e) to amend the Conveyancing Act 1919
to provide a further exception to the requirement that certain transactions refer to lots shown on a current plan to enable the conversion of Crown land to Torrens title as part of a Crown Title conversion project,
(f) to require a mortgagee or chargee, in exercising a power of sale in respect of mortgaged or charged land, to take reasonable care to ensure that the land is sold for not less than its market value,
(g) to make provision in relation to other miscellaneous matters.
In other words, the bill makes a number of changes to the State's property laws in order to reinforce and streamline some property principles. It also goes some way to addressing the problem of fraudulent dealings with titles. A considerable number of amendments have been designed to protect the State's budget from these fraudulent claims through the Torrens Assurance Fund. I know the Government is a bit slow, but finally it has caught up with what, from memory, the member for Ballina was calling for in 2001. It has taken eight years, but it has finally picked up on it and converted it into legislation. It is good to see the Government catching up with the Opposition. Those of us who were members of this place in 2001 will remember that the member for Ballina, Mr Don Page, sought to legislate to further protect homeowners from unscrupulous mortgagees when exercising their power of sale. It is good to see that the Government is catching up with the Opposition and I commend the member for Ballina for being farsighted in this regard.
Mr Daryl Maguire:
They voted against this bill.
Ms KATRINA HODGKINSON:
As the member for Wagga Wagga says, the Government actually voted against the bill at the time. We remember, and we know that the Government is playing catch-up in so many ways, but it is good to see that it is taking a leaf out of our book. By way of background in relation to the Real Property and Conveyancing Legislation Amendment Bill 2009, the majority of the State's privately owned land is held under the Torrens Title system pursuant to the Real Property Act, as members will be aware. This system is based upon the registration of titles, which is effectively guaranteed by the State and is known as indefeasible title. In short, the system is that members of the public can rely upon the details as to land ownership and encumbrances as recorded in the State-run land titles registry. Over time there have been some attempts to establish exceptions to the title system. The Government has been one of the most regular transgressors of this by passing various pieces of legislation that override the Torrens system.
This was one issue that was pointed out to us by those organisations mentioned during my contribution today. The example used in the Minister's speech is the Land Tax Act, which creates a charge over land for unpaid land tax, which does not appear on the register. The Government has identified about 20 Acts that have this effect. The bill provides that if an Act is intended to override the Torrens system it must state that it is doing precisely that. Mr Acting-Speaker, I know that with your legal background you will be well aware of the need for this. Often the first that an innocent owner knows of fraud is when the mortgagee sells the property. As part of the Torrens system there is an insurance-type fund called the Torrens Assurance Fund, which has been used to compensate innocent landholders who are victims of fraudulent mortgages.
The bill is well and truly overdue, and again I note the contribution of the member for Ballina. I am sure that he will enhance our knowledge when he speaks to the legislation. The bill attempts to address the problem by tightening up the requirements on mortgagees to verify the identity of the borrower in a way similar to banks, which gives the Registrar-General increased powers to test the veracity of documents lodged and deal with any suspected irregularities, and also tighten up the requirements on witnesses to documents by requiring that they know the person signing or have done a proper check.
The bill also goes to some length to tighten up the availability of compensation from the Torrens Assurance Fund and to permit the fund or the Registrar-General to seek reimbursement from fraudsters. The bill makes some amendments, as we heard in the Minister's second reading speech, to the Conveyancing Act codifying or making more certain provisions for dealing with abandoned easements and also some further procedural amendments in relation to the requirements for conversion of Crown land to Torrens Title. The bill also picks up the concern about the need for fairness and proper conduct of mortgagees in exercising their power of sale. The amendment requires that a mortgagee who exercises its power of sale over real estate take all reasonable care to ensure that the property is not sold for less than its market value at the time of sale. It is probably not much of an advance on the common law and there are all sorts of issues as to how one establishes market value, but it is still a useful codification of the law.
It is important to note that these amendments, particularly in relation to mortgagee fraud, are well overdue. It is another example of the Government's failure to act on an important matter. The Opposition has been on this case for at least eight years. The Government voted against it at the time. It is still playing catch-up with this legislation. I hate to think how many frauds have taken place because this legislation has not been in place for the past eight years, but finally the Government has taken some steps to do the right thing. The Opposition will not oppose the legislation.
Mr FRANK TERENZINI
(Maitland) [12.56 p.m.]: I am pleased to support the Real Property and Conveyancing Legislation Amendment Bill 2009, which makes a number of significant reforms. I will concentrate on the proposed measures to amend section 111A of the Conveyancing Act 1919. This will impose on mortgagees and chargees, who exercise their power of sale over land, a higher duty of care than exists under the current New South Wales law. The law in New South Wales regulating a mortgagee's duty when selling land following default is presently governed by case law or common law, not by statute. The current duty requires a mortgagee to act in good faith when selling the borrower's property and not to act wilfully or recklessly. The current duty of care is considered not to be high enough, therefore requiring these changes.
There is concern that lenders do not always take steps to achieve the highest possible sale price; rather, a mortgagee may be tempted to only consider its own interest and sell the property for just enough to recoup the outstanding debt. If instead a fair market price were obtained there might be something left over for the borrower. Numerous cases have reached the courts where an unhappy borrower has sued the mortgagee, alleging that a property has been sold for less than the true market value. The borrower either sought to have the sale set aside or claimed damages from the mortgagee to make up the difference between the sale price and the alleged true market value. The litigation is very costly and time consuming and the amendments seek to address this issue. Section 111A will ensure that when mortgagees sell a property they are obliged to take all reasonable care to sell it for not less than its market value. Such an obligation is only fair and reasonable.
The change will bring the law in New South Wales into line with the Commonwealth Corporations Act 2001. Section 111A is modelled on section 420A of the Corporations Act, which applies to a controller of company property. The expression "controller" includes a mortgagee or a receiver. A controller is required to take reasonable care to sell the property for not less than its market value. The proposed amendment to section 111A has a long history. The member for Ballina, who I note is in the House and preparing to speak to the bill, has a keen interest in this issue and has put forward a number of suggestions for reform. The Government thanks him for his commitment to this issue and his passion for these changes. All of the earlier proposals put forward by the member have been included in the current form of proposed section 111A together with additional reforms.
The current section is wider than the earlier versions considered by this House as it applies not only to mortgagees exercising a power of sale but also to agents appointed by a mortgagee. A mortgagee may sell mortgaged property not only by exercising the power of sale, but may also sell pursuant to a power of attorney contained within the mortgage. The mortgagee may also appoint a receiver to sell the property. This is particularly important as a receiver, even when appointed by the mortgagee, is considered by law to be an agent of the mortgagor. Accordingly, the receiver would not be bound by a duty of care that binds only the mortgagee. Proposed section 111A (2) of the bill addresses this issue and extends the mortgagee's duty to any agent appointed by the mortgagee to sell. These statutory changes are tidying up that area of the law that is subject to argument and litigation.
Another key consideration with the timing of the present proposal relates to the additional obligations that have been imposed on mortgagees when first entering into a mortgage. The bill imposes an additional obligation on a mortgagee, when initially preparing the mortgage documentation, to take reasonable steps to ensure that the person who executed the mortgage is, or is to become, the registered proprietor of the land. As with the introduction of the mortgagee duty on sale, this proposal is only reasonable. The obligation, however, includes a requirement that the documents perused to verify the mortgagor's identity must be kept for a period of seven years. This obligation may cause the banks to change their record-keeping practices. It may impose an additional burden, but given the fact that the amendments relate to their higher duty of care it is only reasonable that both these amendments be introduced in this bill, as it will minimise any inconvenience during implementation.
In the current environment of global financial uncertainty, it is appropriate that New South Wales move to introduce a statutory duty on mortgagees selling mortgaged land following default. The legislation will protect homeowners who find themselves in financial difficulty and are unable to service their home loans. My electorate of Maitland is a growing area. For that reason we do not envisage an enormous problem in relation to these matters. However, given the financial uncertainty and the forecast in the last 24 hours of a future global downturn—of which members will no doubt be aware—this legislation is very timely. It will ensure that homeowners who are unable to meet their mortgage payments and are unfortunate enough to go through the experience of having a mortgagee take possession and sell will at the very least know that a high duty of care is imposed on the mortgagee to do all he or she can to realise the value of the asset. That should apply to the vast majority of properties that will fall into this category. It will ensure the value is assessed and the duty of care is met. For those reasons I commend the bill to the House.
Mr DONALD PAGE
(Ballina) [1.02 p.m.]: I wish to make a contribution to debate on the Real Property and Conveyancing Legislation Amendment Bill 2009, especially relating to proposed section 111A, which is the section that concerns the behaviour of mortgagees in possession in exercising their power of sale. Specifically, it is the section that requires a mortgagee in exercising a power of sale in respect of mortgaged land to take reasonable care to ensure that the land is sold for not less than its market value. I point out to the House that this proposed section of the bill is almost identical to legislation that I introduced originally in 2000 and identical to the legislation that I then reintroduced in 2007. After the introduction of my original legislation in 2000, the then Minister responsible, Kim Yeadon, saw the merit of the bill and ordered a discussion paper to be drafted, printed and put out for public comment. All stakeholders responded and there was overwhelming support for the legislation—except, predictably, from the banks.
Subsequently a couple of minor amendments were made and the legislation passed this House with bipartisan support in September 2001. Unfortunately, that legislation never passed the Legislative Council due to the prorogation of Parliament for the 2003 election. So the legislation lapsed. Subsequently, in 2007, and in response to rising interest rates at the time and the revelation by the Reserve Bank that 40,000 people in New South Wales were suffering mortgage stress, I reintroduced the legislation, which had already passed this House with bipartisan support. Members can imagine my surprise, disappointment and anger when the Government said in debate that it was not going to support the legislation. I doubt there has ever been such a clear example of a Government turning its back on good legislation for petty party political reasons.
This Government voted down my legislation simply because it had been introduced by a member of the Coalition and not the Government. That legislation would have assisted thousands of borrowers to get market price for their homes when they were being sold by the banks or other financiers. In other words, thousands of homeowners have been denied protection they should have received. Thanks to this Government playing petty party politics, thousands of homeowners who should have had a guarantee that they would receive market price when their homes were subject to a forced sale have been denied that protection. In many cases the borrower's equity has been sacrificed when it should not have been, and they can thank this Labor Government for their lost equity. The loss of that equity means that those people do not have the money they should have had to use as a deposit on their next home.
Proposed section 111A of the bill is identical to my 2007 bill apart from subsection (2). Subsection (2) extends the duties of a mortgagee and chargee to include an agent, but in every other respect the subsections are the same, albeit with different numbers. Proposed section 111A provides that where a mortgagee is in possession, the borrower's equity will be protected because the property will be sold at market price. This legislation will give them more protection than they have under New South Wales case law. Common ways for financiers or mortgagees not to fulfil their duty of care include failing to advertise the property at all or failing to advertise for a sufficient period, incorrectly describing the size of the property, failing to pursue prospective buyers interested in purchasing the property at a higher price and generally failing to promote the property to obtain the best possible price. Queensland and Northern Territory legislation adopts the approach contained in this legislation. Under common law, the decision as to the timing of the sale is entirely within a mortgagee's discretion. Mortgagees can choose when to sell the property and it cannot be alleged against them that they would have obtained a higher market price had they sold sooner or delayed the sale. This legislation does not change that position.
There is a difference between the Federal and State law regarding the duty of care for financiers concerning the disposal of assets when they become mortgagees in possession. In New South Wales case law the only requirement is that a selling mortgagee act with good faith and not wilfully or recklessly. This relatively low duty of care can have the effect of sacrificing the mortgagor's interests when the property is sold. However, under Federal Corporations Law, when exercising a power of sale in respect of property the selling mortgagee must take all reasonable care to sell the property at not less than its market value or otherwise the best price that is obtainable in view of the circumstances in which the property is being sold. The temptation for financiers in New South Wales is to sell the assets with a view to ensuring that their own debt is covered, with little regard for any remaining equity held by the borrower.
An example is a property worth, say, $1 million with a $500,000 mortgage. The way the law currently operates in New South Wales means that the only requirement of the financier is to act in good faith and not wilfully or recklessly. This means, effectively, that provided the financier gets their $500,000, potentially they can sacrifice the equity held by the property owner. There is no requirement to obtain market price. I thank Mr Peter Jackson from Jackson Smith Solicitors for drawing my attention to the weakness in the New South Wales situation in 2000. He also provided me with case studies and circumstances in which mortgagors have been disadvantaged by the relatively low duty of care that prevails in New South Wales compared with the Federal jurisdiction, where litigation has often ensued. I thank him for his valued input. I believe this legislation is morally and legally the correct approach to take in relation to a mortgagee or chargee's duty of care.
I am pleased that the Government has adopted my legislation as part of its legislative package. The inclusion of my bill gives the lie to the claim that the Coalition does not have any policies! This legislation should have been law eight years ago and it certainly should have been law in 2007. Thousands of property owners have not had the protection they deserve by ensuring their properties were sold at market value. It is important that we protect homeowners. Given the history of this legislation—in particular proposed section 111A, which was supported by the Government in 2001, with strong support from The Nationals and the Liberal Party—I strongly support the bill before the House.
Mr PAUL PEARCE
(Coogee) [1.09 p.m.]: I support the Real Property and Conveyancing Legislation Amendment Bill 2009, the objects of which are broadly to reaffirm the principle of indefeasibility of title under proposed section 42; to facilitate the removal of certain abandoned easements; to introduce additional identification requirements in relation to mortgagees and witnesses; to make certain amendments to the amounts recoverable from the Torrens Assurance Fund; to make certain amendments to the provisions of the Conveyancing Act; and to place an obligation on mortgagees when exercising a power of sale. I acknowledge the comprehensive explanation and analysis of the bill provided to the House by the Parliamentary Secretary, the member for Miranda. I therefore do not propose to traverse the extensive ground covered in his speech to the House. However, I will be focusing my comments on two specific aspects of the bill, namely, the amendment to section 42 of the Real Property Act and the new elements being introduced to fraud on the title and the consequences arising from those proposals.
Section 42 of the Real Property Act establishes the principle of indefeasibility of title, which is at the very core of the Torrens system of land title. The Torrens register records current title ownership and other registrable interests in land. All land thus recorded in the register is guaranteed by the State Government as to its accuracy and completeness of title. A person who has such a recorded interest can be confident that the interest cannot, in general, be defeated by another unregistered interest. Once the land has been converted from the old system to Torrens title a title cannot be set aside due to some defect in the title prior to registration. As the Parliamentary Secretary outlined, over time there have been changes in other legislation that have had the effect of partially repealing sections of the Real Property Act.
In relation to the effect on section 42, subsequent legislation can have the effect of creating statutory exceptions for indefeasibility. In part, this bill seeks to amend section 42 so that it will prevail over any other inconsistent provision of any other Act unless the inconsistent provision provides otherwise. The other major impact of this bill lies in the provision that deals with mortgages and obligations on mortgagees. As identified by the Hon. Tony Kelly in another place, the issue of identity fraud is a growing problem. The Minister noted that his department had been involved in an increasing number of claims for compensation relating to mortgage fraud. In many instances there seems to have been a lack of due diligence exercised by some lenders in properly verifying the identity of the borrowers.
The Torrens Assurance Fund is available to compensate innocent landowners who are victims of a fraudulent mortgage. However, as the Minister pointed out, it is preferable if the fraudulent mortgage can be avoided in the first place. As identified by the Parliamentary Secretary, the majority of cases of fraudulent mortgages in which the Registrar-General is involved are those known as low-doc loans. In my opinion, the whole area of low-doc loans needs to be addressed. Not only are they open to fraud in that often the lender has not performed due diligence, but also they are often advanced to a person at usurious interest rates. Further, the only security of the loan is the apparent value of the property. The combination of these factors gives the fraudster every opportunity to commit the fraud.
To address this situation, the bill seeks to place upon the mortgagee obligations to take reasonable steps to confirm the identity of the mortgagor before presenting the mortgage for lodgement and registration. A failure to do so that leads to fraud against the registered proprietor of the land will permit the Registrar-General to cancel any recording in the register with respect to the mortgage. The impact of this on priority is obvious. The reasonable standard, to be known as the Registrar-General's Directions, will be, as a minimum, the 100-point check common to financial institutions. The objective of these changes will be to prevent unscrupulous lenders from relying on the core feature of the Torrens system that is intended to provide security of title. Stronger obligations are also to be placed on persons witnessing to documents.
As pointed out by the Parliamentary Secretary, the attesting witness plays a key role in the prevention of fraud in property dealings. Proposed section 129 sets out the circumstances in which compensation is payable from the Torrens Assurance Fund. The amendments proposed in the bill expand the number of circumstances where compensation will not be payable. These changes have been considered by the Legislation Review Committee, which brought to the attention of the House the judgement of Justice Walsh in the case of Forsyth v Blundell
wherein the majority judgement created a third category of conduct being more than mere negligence but less than actual fraud. The committee expressed concern about the fact that the mortgagor's interest may be unduly trespassed if his or her right to compensation is not adequately protected under proposed section 129 (2) (n) in circumstances where the mortgagee has breached the duty of care owed to the mortgagor and has improperly exercised a power of sale that is more than mere negligence but less than actual fraud, as identified in the High Court case referred to. I ask the Parliamentary Secretary to consider this. I commend the bill to the House.
Mr GREG APLIN
(Albury) [1.14 p.m.]: In speaking in debate on the Real Property and Conveyancing Legislation Amendment Bill 2009 I follow the comments of my colleagues the member for Burrinjuck and the member for Ballina. I will deal with two areas of concern, where this bill is underdeveloped and needs more work. The most important of these problems is the proposed amendment to the Conveyancing Act 1919 to deliver in statute the principle that mortgagee sales must be at market value. Members of this House have long been aware of community concerns that mortgagees do not always appear to work towards the highest possible sale price for their customers who have defaulted on their mortgage repayments, thereby triggering the mortgagee sales provisions of the Conveyancing Act.
This has the potential of compounding an already frightening domestic tragedy into a crippling financial disaster for the family or the individual who has fallen behind. We would all like to do something about this. It is pleasing to see the Government belatedly acting on this proposal, which was first presented to the House by the Opposition some nine years ago. As stated a littler earlier, the legislation was originally introduced in 2000 by The Nationals frontbencher the member for Ballina. It was designed to protect homeowners' equity when they are sold up by financiers by ensuring that the property is not sold at less than market price. Only last week in debate upon the introduction of the bill the member for Ballina stated:
In the meantime thousands of NSW property owners have not had the protection they deserve by ensuring that their properties are being sold at market price when they have been forced to sell. The failure of the State Government to act earlier is even more disgraceful given that the legislation went through the Lower House in 2001 with bipartisan support but never became law because it did not pass the upper House in time prior to an election.
It is one thing to state the principle but quite another to present a workable standard of care owed to the property owners by a mortgagee exercising his or her statutory power of sale over real estate. The Government has put forward this standard. The Parliamentary Secretary, the member for Miranda, said in his agreement in principle speech:
The bill therefore proposes to impose a duty of care on mortgagees and chargees when exercising a power of sale in respect of mortgaged or charged land, requiring the mortgagee to take all reasonable care to ensure that the property is sold for not less than its market value at the time of sale. The proposed amendment will be similar to a provision in the Commonwealth Corporations Act, which requires that where property of a corporation is sold by a controller—defined to include a mortgagee—the controller must take all reasonable care to sell the property for not less than the market price.
Let us consider how the Government has put this principle into the bill through proposed section 111A. Proposed section 111A, which is entitled "Duties of mortgagees and chargees in respect of sale price of land", reads as follows:
(1) A mortgagee or chargee, in exercising a power of sale in respect of mortgaged or charged land, must take reasonable care to ensure that the land is sold for:
(a) if the land has an ascertainable market value when it is sold—not less than its market value, or
(b) in any other case the best price that may reasonably be obtained in the circumstances.
While there are ancillary provisions to this proposed section dealing with relevant matters such as the use of agents and accounting to the mortgagor, proposed subsection (1) sets the standard—the duty of care owed by the lender to the borrower under a forced sale. Let me be clear about the failings of this provision in the bill. Having determined that some mortgagees in exercising their power of sale have not been acting reasonably, the Government's solution, after due consideration, is to hold up its legislative stick and tell them to act reasonably. To take reasonable care, the lender or his or her agent must ensure that, in the common situation where the land has an ascertainable market value when it is sold, it sells for "not less than its market value".
What is market value? Market value at an auction is different from market value by private sale. Many would argue that a public auction is, by definition, market value of the property on the day, despite what any other valuation report might have said. There may be many market values at any one time from a variety of perspectives. This standard is, of course, a nightmare for estate agents and mortgagees, some of whom will be dragged into expensive court cases despite acting in good faith. The proposal is simply too vague for satisfactory implementation in the marketplace. It is unhelpful. If this section is unworkable for the mortgagee and his or her agent it will inevitably create major problems for the homeowner who is faced with uncertain but expensive litigation as a remedy. Subsection (4) of proposed section 111A states:
the title of the purchaser cannot be challenged on the ground that the mortgagee or chargee has committed a breach of any duty imposed by this section, but a person who suffers loss or damage as a result of the breach of the duty has a remedy in damages against the mortgagee or chargee exercising the power of sale or selling the land.
The Government states that the homeowner who has lost his or her home and who is now financially and emotionally broken can take the mortgagee to court with nothing more from this bill to rely on than the terms "market value" and "reasonable care". For many with shattered lives that is a false hope. Who will fund their court case? The Government gives homeowners, investors in real estate and finance industries just 63 words with no precision that are ultimately of little practical worth. It is important to get this right because homeowners are becoming increasingly vulnerable. We expect the situation to get worse before it gets better. The Australian Bureau of Statistics states:
[There has been] an unprecedented period of growth in household debt in many developed countries over the past 30 years.
The relevance is how that debt sits relative to the value of our assets, foremost of which are our homes. On 25 March 2009 the Australia Bureau of Statistics in its most recent publication on the subject stated:
Comparing levels of debt with assets provides context on how they have changed over time. Between September 1990 and September 2008, the ratio of total household debt to assets held by households rose from 9% to 19%. In other words, debt grew twice as fast as the total value of assets held by households. The sharp increase in the debt to asset ratio from December 2007 to September 2008 was due to a decline in the value of household assets.
Of course, equity also grew over this period, and we have used this to renovate and buy more consumer goods. Need I remind the Government that the threat of mortgagee sales hangs heavy over this State, where loan arrears have been rising faster than in other States? According to the Australian Bureau of Statistics in its publication Australian Social Trends
, which was released on 25 March 2009:
The overall arrears rate for prime securitised loans was higher in New South Wales than the other States and Territories, and increased to a greater extent between April 2003 and July 2008 (from 0.18% to 0.84%). Higher arrears rates in New South Wales have been related to relatively weak economic conditions and housing markets in areas of the State. As an example, the increase has been greatest in western Sydney (up from 0.25% in March 2004 to 1.28% in July 2008) where house prices have been under downward pressure and where a disproportionately large number of borrowers took out investment housing loans around the peak of the house price cycle. The 2004-2006 increase in arrears rates in New South Wales resulted in a sharp increase in the number of court applications for property repossession as a proportion of the dwelling stock, from 0.10% in 2003 to 0.22% in 2006.
The increase remained steady at 0.22 per cent in 2007. What could the Government do to bring clarity and market efficacy to the lofty principle of protecting homeowners caught up in the mortgagee sale of their home or investment? The bill needs greater precision. For example, limits could be included to help define what is an acceptable value for a mortgagee sale. In recent years many States have introduced legislation and codes of practice to deal with the problem of underquoting property prices in advertisements and promotions for the sale of real estate. Consumers are fed up with preparing for the auction of a property that they were led to believe was in their price range only to turn up and see the property sell for a vastly higher sum. The Government's response is to introduce legislation and various codes. On the relevant subject of setting price "reasonableness", Victoria's guidelines for estate agents state:
The salesperson's estimated selling price is the price quoted to a vendor. In the salesperson's opinion it is the likely selling price based on the market conditions at the time the authority is signed. Under the Estate Agents Act it is a price that a willing but not anxious buyer would be prepared to pay for the property. It may be a single price or range of not more than 10 per cent from the lowest amount within which they believe realistically that the property may sell, based on the information available at the time the estimate is made.
It must be noted that the Victorian standard may be broken for, amongst other reasons, straying outside a range, but not for selling below the property's market value as though this might be a single, accurate figure. In South Australia new laws from 2008 require:
The agent's estimated selling price can be expressed as a single figure (e.g. $300,000) or as a price range. If the agent nominates a price range the upper limit mustn't exceed the lower limit by more than 10%. For example if the lower limit is $300,000 then the upper limit can't be greater than $330,000. The agreement must also include the price sought by or acceptable to the vendor.
The New South Wales Office of Fair Trading guidelines for estate agents say that it is acceptable to use a dollar figure range—for example, from $500,000 to $550,000, or a non-specific range, such as mid $500,000—but agents must be able to justify their estimate. Section 72 of the Property, Stock and Business Agents Act prohibits an agent from making false representations to a seller about the agent's true estimate of the selling price of a property, while section 73 prohibits falsely understating the estimated selling price to a seller or buyer. This includes oral and written advertisements. Section 75 extends the prohibition to a situation where a price range is given. New South Wales laws provide for a maximum penalty of $22,000 for agents who overprice or underprice. South Australia's estate agency reform laws go further and involve the property owner varying the selling price when market interest is poor. This requires active participation of the property owner in amending the agency contract, as evidenced by requiring the signature of the owner. The guidelines state:
On occasions, some properties may fail to attract any offers or they may only receive offers that are below the price being sought. As a result, the vendor may choose to lower the advertised price. Before advertising or other representations about the property can reflect a lower amount, the Sales Agency Agreement must be amended and signed by both the vendor and the agent, as evidence that a lower selling price is acceptable to the vendor and estimated by the agent.
These are all helpful provisions to determine a fair price in the practical, real world. In contrast, the New South Wales Government's bill is pale and underdone on the issue of mortgagee sales. Should there be a point in a falling or stalled property market at which the homeowner must be consulted before their home is sold by the mortgagee? Could the concept of "market value" be defined with benchmarks that everyone can understand and follow, or else defer the sale? The bill is silent on this aspect. As presented to us, "market value" and "reasonable care" lack precision exactly at the point where homeowners might lose everything for which they have worked.
We owe it to the homeowners of New South Wales to get this right. We have to turn the fine principle into a workable test that does not require a court case launched by a financially broken homeowner at a time of personal crisis. Agents and financial institutions also are dealt no favours by such a vague test. How can they ensure that they comply with this standard? With proposed section 111A the Government is throwing a hand grenade into the heated room of mortgagee sales. It should work on this further and then deliver a solution. New sections 117 (4) and 117 (5) provide for the obligations on eligible witnesses. In order to limit further the opportunity for identity fraud, the bill places stricter obligations on persons acting as witnesses in signing documents relating to land. As the Parliamentary Secretary stated in the agreement in principle speech:
A witness who falsely or negligently certifies the identity of a party to a dealing to the Registrar-General may be held accountable both to the Registrar-General and to the landowner where loss occurs as a result of a fraudulent or negligent certification.
New section 117 (4) states:
(4) In this section, eligible witness, in relation to the execution of an application, dealing or caveat, means a person who:
(a) is at least 18 years of age, and
(b) is not a party to the application, dealing or caveat
Paragraph (c) then states that the witness must have known the person for 12 months or have taken reasonable steps to ensure the identity of the person. Identity fraud is a serious problem, but this bill is tough on the witness. Traditionally, the role of the witness in the execution of documents was to testify, should it become necessary, that the person signing the document did so of their own free will, without coercion, and presented themselves in sound mental condition. Under section 117 of the Real Property Act the witness was not required to confirm the identity of the party; rather, to attest to a lesser standard that they are personally acquainted with, or are otherwise satisfied as to the identity of, the person. The bill takes this requirement further, although it does not appear to increase the penalties for bad witnesses, including liability for damages in a civil action. The bill seems to expose witnesses to these penalties and actions by introducing a stricter definition of responsibility that calls on them to take reasonable steps to ensure the identity of the person. [Extension of time agreed to
The word "ensure" is a new concept in this context, and its definition sets a very high standard. The Opposition takes issue with the function of this clause. A witness to the signing of a document usually receives nothing from the transaction; it is merely a goodwill gesture. However, the bill makes the function of being a witness a deadly serious action. The bill requires witnesses to demonstrate that they have taken reasonable steps to ensure the identity of people they have known for years through Rotary, a sports c1ub, school parent associations and so on. We usually take no steps to check identities, but simply act on trust. How often do we even know their full names, the accurate spelling of their names or whether their uncle carries the family name or simply bears the term "uncle" as a familiar endearment rather than a strict expression of familial relationship?
With hindsight, we would all look foolish should a friend or acquaintance turn out to have led a double life—or, in other words, acted like a conman. The test should not require witnesses to "ensure" the identity of the signatory. The witness should be required merely to state that they have known the person for more than 12 months and that the person has used the stated name during that period. If necessary, the bill should specify readily available and straightforward elements for acceptable identification, such as a passport, birth certificate, photo driver's licence or other usual documents. The appropriate standard is not for the witness to "ensure" they have taken reasonable steps to identify the person. Proposed sections 117 (4) and 117 (5) should be redrafted.
Debate adjourned on motion by Mr Barry Collier and set down as an order of the day for a later hour.
[The Acting-Speaker (Mr Wayne Merton) left the chair at 1.31 p.m. The House resumed at 2.15 p.m.