Will Victoria legislate a requirement that lenders must take reasonable steps to identify potential borrowers?

These proposals have gained currency in Australia, and Victoria has followed suit, as a result of allegations that the registration of fraudulent mortgages have become more commonplace. See, for example, the Victorian Bill's second reading speech, which alleges that there have been instances where a fraudulent mortgage was registered as a result of a financial institution neglecting to verify adequately the party with whom it was transacting (and thereby contributing to the fraud).

In my opinion, it is good lending practice for potential mortgagees to undertake a detailed identity verification procedure, whether the Bill passes into legislation or it lapses when Parliament is prorogued for the forthcoming state election.

The problem with fraud is that identity theft is becoming more common, and fake identity documents are being used by fraudsters to trick lenders into lending money even if a thorough identity check is conducted.

Electronic conveyancing and Electronic Certificates of Title are also nearly upon us, potentially creating more opportunities for fraud as a result of identity theft.

Whilst casting a heavier onus on lenders appears to be a simple answer to the problem, in reality identity theft is the real problem. If a lender has been duped by fake identity documents, these proposed legislative changes are unlikely to save the registered proprietor from the consequences. Lenders are more likely to be able to protect their position than registered proprietors. If a lender has conducted a thorough identity check as required by the proposed legislation, and it has still failed to uncover the identity theft, the registered proprietor will lose his or her property when the lender takes steps to recover the loan secured by its mortgage. This proposal will give mortgagees extra protection, by forcing them to prove that they took appropriate steps. Once those steps are proven, the registered proprietor will lose the mortgaged property even though they are not a party to the transaction.