Fraud and Identity

The enemy of any titles registration system is fraud. Students of property law learn that the major exception to indefeasibility of title is fraud (section 41 Transfer of Land Act).

In the absence of title insurance, who bears the cost of fraud on the register? The Registrar of Titles? The Lawyer? The Rightful Owner? The Mortgagee?

I am personally convinced the electronic conveyancing initiative will reduce the incidence of fraud. There are several initiatives, which combined together will produce a superior registration system:

1. Identity requirements


2. Two factor digital signatures


3. Multiple parties to the settlement and registration


4. Paper audit trails

I am concerned that today’s current systems is open to abuse. This is evidenced by reported frauds in North America and close to home New South Wales. Undoubtedly there are the unreported frauds that don’t get any publicity. As a property lawyer I can see various lines of weakness. Not so much fraud but as I have mentioned before you don’t need a 100 point check to be registered on title. How piss weak is that.

The sooner duplicate titles are made redundant as with the paper registration system the better off we will be.

Identity - I strongly support lawyers, conveyancers and mortgagees having to identify clients. This will be a giant step forward. It simply cant be a retrograde step. Could someone produce a wad of concocted bogus identity documents. No doubt. And if you have any doubts there are or will be separate independent checks you can make.

Two factor digital signatures. EC is introducing a digital signature which can only be applied to an instrument provided the Subscriber can only sign documents on a particular computer. Thus it will be difficult for the Subscriber to deny that it was or was not his signature. Yes, the system could be open to a rogue Subscriber, and that is a risk. Bruce Schneier has published an interesting article that questions the efficacy of digital signatures. In isolation I would agree with his arguments. And yet Bruce provides some contradictory remarks to his main argument against digital signatures -

“This is not to say that digital signatures are useless. There are many instances where the insecurities discussed here are not relevant, or where the dollar value of the signatures is small enough not to warrant worrying about them. There are also instances where authenticating to the signing computer is good enough, and where no further authentication is required. And there are instances where real-world relationships can obviate the legal requirements that digital signatures have been asked to satisfy.

Digital signatures prove, mathematically, that a secret value known as the private key was present in a computer at the time Alice's signature was calculated. It is a small step from that to assume that Alice entered that key into the computer at the time of signing. But it is a much larger step to assume that Alice intended a particular document to be signed. And without a tamperproof computer trusted by Alice, you can expect "digital signature experts" to show up in court contesting a lot of digital signatures.”

Because the digital signature / private key will need to be used on a particular computer with password security the opportunity for your average fraudster to have access is remote.

But as I said in the introduction the system of electronic registration is the sum of the parts.

Multiple parties. Every transaction will have at least two parties and in many cases there will be 4 parties to any sale and purchase. That in its own right will produce large hurdles for fraud.

Paper audit Trail. Paper trails have not been eliminated from e-conveyancing. There will still be a requirement for paper contracts. Paper loan documentation. And even paper Representation Agreements and copies of identity documents. The combination of the described paper audit trails, identity requirements and e-conveyancing authentication methods, I believe lowers the risk of fraud on the register.

Is there a perfect system? No. Bruce Schneier’s article on fraud is essential reading. “Fraud has been perpetrated against every commerce system man has ever invented, from gold coin to stock certificates to paper checks to credit cards. Electronic commerce systems will be no different”

Should there also be compulsory title insurance? I cant see why not. That way everyone pays.

Bruce Schneier’s articles:
Digital Signatures
Fraud

Buyers Beware

Will the buyers agent become more and more prevalent? Buyers are at a distinct disadvantage in the negotiation stakes. The agent is acting first for the seller and secondly for himself.

The local agent gets to know what buyers are out there. They see them at the inspections, at auctions, and they learn a great deal from these interactions. The buyer may have been the underbidder. He knows the price range the buyer is looking at and roughly what the maximum that buyer can pay. And it is this information the agent uses "against you".

Whereas the buyer doesn't know or meet the vendor or what is motivating the vendor to sell.

domain.com.au published this advice: Real-estate agent Peter Dempsey, director of The Dempsey Agency

"Play your cards close to your chest. The agent is not working on your behalf but should be acting in the seller's best interests, so you don't want to give them too much information. Otherwise it could work against you in the negotiation process. The agent may ask you if you have your finance arranged. Confirm you have but don't tell the agent about your buying ability. Certainly, don't say you can go to $410,000 or borrow up to $450,000. That sort of information should never be revealed. Don't disclose your profession either. Reveal nothing more than scant details so the agent can simply narrow down the purchase for you.

"If the agent offers properties beyond your price range, then you can acknowledge that. You can't keep money out of the equation all of the time. When you are negotiating over the last $20,000, you may say you don't have the ability to go further and your mortgage offer is set at X amount. First-time buyers often allow the real estate agent to control the conversation and negotiation. You have to take that control out of the hands of the agent. This slow market allows buyers to do that."

Or just use a Buyers Agent.

Termites

This list of cover-ups and estimated costs to repair is based on the findings of Archicentre conducting pre-purchase housing inspections in Australia and the Archicentre Cost Guide.

1. Illegal building. Up to $100,000.


2. Cracking. Up to $50,000. About $3000 to repair. Internal walls patched and painted, external walls concealed behind plants or trellis.


3. Roof problems. Up to $20,000. Rusty metal roofs painted, tile roofs patched with lead. Damaged roof framing propped up in roof space.


4. Termites, borers, and timber rot. Up to $20,000. On average $5000 to repair. Floor damage patched and concealed under carpets.


5. Rotten weatherboards and windows. Up to $10,000. Rot patched with filler or covered with tin then painted.


6. Rotten stumps. On average $8000 to repair. Floors temporarily propped to prevent bouncing.


7. Faulty/illegal wiring. About $6000 to repair.


8. Faulty/illegal plumbing. Same as previous.


9. Damp. On average $5000 to repair. Walls painted or furniture placed against damaged walls.


10. Guttering/downpipes. About $3000 to repair. Rusty gutters patched and painted.

Should changes in legislation be debated to make Building Inspection Reports mandatory disclosure when a property is put up for sale? I believe the ACT has such a regime. The Vendor foots the cost of the Inspection Report and is reimbursed by the ultimate buyer.

Here's a link to an article "What lies beneath" by Robyn Willis published in the Daily Telegraph

Investing for Income or Capital Gain?

The quandry for many investors is devising a strategy for property investment and sticking to it. Do you invest for positive cash flow and what is positive cash flow? For the purists positive cash flow does not mean taking into account depreciation and income tax benefits.

Almost a given is both positive and negative gearing primarily require a long-term commitment in order to maximise gains. However, they don’t really go hand in hand.

Michael Yardney of Metropole Properties says, “Properties that tend to have positive cash flow have poorer capital growth, whereas properties that have good capital growth in general have poorer cash flow."

Bronwyn Davis writing for realestate.com.au gives a thorough insight on the subject of buying for income or buying for capital gain; positive cash flow or negative gearing.

However for most early investors, their choices will be limited by what they can afford to commit. Their affordability limit will be dictated by two factors: how much equity they have in the properties they own and what is their disposable income that can be committed to the new investment.

And for the majority of the population, such constraints puts the $1M property in Brighton beyond their reach. Happy searching.

Certification of Transfers under EC - the 4 tick boxes

Under EC the lawyer / conveyancer will need to tick 4 check boxes certifying

1. You have verified the identity of his/her client


2. You hold a properly completed and signed authorisation to sign and lodge the instrument on the client’s behalf


3. You have thoroughly examined and retained copies of all documentation necessary to support the instrument


4. You believe to the best of his/her knowledge at the time that all of the information provided in the instrument is correct.

Sample of an EC(Vic) Discharge Mortgage with the 4 tick boxes

In more detail
Certifying compliance with identity verification requirements
This certification will give all other practitioners and the Land Registry confidence that the practitioner has followed the prescribed procedures in verifying the identity of his/her client, including where necessary meeting the client face-to-face, sighting the originals of all identity documents and verifying the authenticity, and retaining all prescribed documentation. It is a certification of having followed a prescribed procedure and may protect the practitioner from a negligence claim if the identity is subsequently proven to be false.

Certifying holding a properly completed Client Authorisation
This certification will give all other practitioners and the Land Registry confidence that the practitioner has entered into a sufficient and properly documented agreement with his/her client to represent their interests in signing and lodging the instrument. The certifications will give all practitioners in the same transaction confidence they can rely on the other practitioners’ having the authority to sign on behalf of their respective clients.

Certifying having examined all necessary supporting documentation
This certification will give all other practitioners and the Land Registry confidence that the practitioner has thoroughly and carefully examined and retained copies for the prescribed period of all documentation necessary to support the instrument. Depending on the circumstances, the supporting documentation might be a probate or death notice, a statutory declaration, a certificate of title, or a marriage certificate, for example.

Certifying correctness to the best of the practitioner’s knowledge
This certification will give all other practitioners and the Land Registry confidence that the practitioner has checked all of the information presented in the instruments and to the best of his/her knowledge believes it to be correct and not misleading.

Source EC NSW newsletter Nov 06

Observation.
Identification. Isn’t it about time that land registries and practitioners address the question and issue of identity. Under current rules there is no requirement to identify our client. We can represent any client, prepare and lodge a transfer without checking their identity. Lets say a client pays cash for a property, no mortgage. This client can use any name or alias. No 100 point check required.

Ditto if a client was to act for him or herself. The Land Registry and State Revenue Office don't require proof of identity. Yet you need 100 point proof of identity to open a simple bank account.

And yet going forward, it is still clear parties can elect to go electronic or stick with the manual paper system. Will 100 point ID be required if you still decide to lodge a Transfer over the counter?

Agents push their own expensive barrows

The Business Age published an article that doesn't exactly help them sell more expensive property classified advertisements. Maybe that's why it is in the business section and not the property section.

Mark Armstrong & David Johnston neatly sum up what we already know, buyers use the internet as their first source of property information. And agents convince vendors to part with their hard earned to spend on expensive print advertising to boost the agents own profile.

The article makes a neat summation -
"Ultimately, neither print nor online advertising has more than a marginal influence on the sale price the agent achieves for the vendor. This has far more to do with the quality of the property, the degree of competition among buyers, and the agent's auctioneering or negotiation skills.

Why if such a high proportion of buyers use the internet to research the property market, and the advertising method has virtually no impact on the sale price, do real estate agents continue to recommend the vendors spend thousands on print advertising as a matter of course?

The answer to this apparent relic of a bygone era is simple - branding."

Read the full article

AG Phil Ruddock weighs in on eConveyancing

Media Release 207/2006

9 November 2006
E-CONVEYANCING TO STREAMLINE LAND PURCHASES

A national electronic conveyancing system has the potential to simplify land purchases and provide significant consumer benefits, Attorney-General Philip Ruddock said today.

Mr Ruddock said each state and territory had its own conveyancing procedures, with different rules covering issues from the terms and conditions of sale through to the exchange of contracts.

“A national system for electronic conveyancing will streamline settlements for individuals and businesses buying and selling land, including across State borders,” Mr Ruddock said.

Mr Ruddock’s comments followed a briefing from Mr Simon Libbis, the Executive Director of the National Electronic Conveyancing Office to today’s meeting of the Standing Committee of Attorneys-General in Perth.

Mr Libbis outlined recent developments in the establishment of a national electronic conveyancing system and the progress of a pilot program in Victoria.

As an electronically based system, it will operate in real-time and be more efficient than current paper-based processes.

“The lack of uniformity with existing State and Territory conveyancing and real property laws can increase the complexity and costs associated with land transactions, especially where transactions have an interstate element,” Mr Ruddock said.

The establishment of a national system for electronic conveyancing will also complement the initiative to develop a single national register for security interests in property other than land.

The Attorneys-General agreed to continue to monitor this initiative, particularly in relation to its effect on the legal profession.

Media Contact: Michael Pelly Parliament House Phone: 02 6277 7300 Fax: 02 6273 4102

Best Invention 2006 - YouTube

Time Magazine nominated YouTube best invention of the year.

What happened? YouTube's creators had stumbled onto the intersection of three revolutions.

1. First, the revolution in video production made possible by cheap camcorders and easy-to-use video software.


2. Second, the social revolution that pundits and analysts have dubbed Web 2.0. It's exemplified by sites like MySpace, Wikipedia, Flickr and Digg—hybrids that are useful Web tools but also thriving communities where people create and share information together. The more people use them, the better they work, and more people use them all the time—a kind of self-stoking mass collaboration that wouldn't have been possible without the Internet.


3. The third revolution is a cultural one. Consumers are impatient with the mainstream media. The idea of a top-down culture, in which talking heads spoon-feed passive spectators ideas about what's happening in the world, is over. People want unfiltered video from Iraq, Lebanon and Darfur—not from journalists who visit there but from soldiers who fight there and people who live and die there.

Its not hard to figure out the common thread for what works on the net. What works on the net is where simple solutions create both community and collaboration. And YouTube has these elements in spades.

digital health - digital property

The whole world is turning digital. It is just a matter of time for the circle to turn.

The holy grail is to convert mountains of paper into digital electronic paper. It is so much easier to search and access digital records & archives than to make a request for a paper copy.

Human Services Minister Joe Hockey last week said his department would look at destroying 275km of paper records held by Centrelink and three square kilometres of Medicare records as part of the access card project. That means Centrelink alone would require at least 69TB to store all of its paper-based records. The systems required to undertake such a project would be several thousand digital cameras, printers and scanners. For a copy of the story Australian IT

Property is not a dissimilar story. Conveyancing from end to end is the story of pass the bits of paper around. And kick my butt if you or the client or the bank or the settlement agent or australia post should lose one of those bits of paper. The whole process can be digitised and think how better off we all would be.

And how much paper is consumed in Victoria for property transactions? For residential conveyancing I estimate that we use 52km of paper every year. Across Australia that figure would multiply out to 173km of paper consumed per year. Mmmmmmmmm

Sample Electronic Title Search & Instruments

Titles can now be either electronic (eCT) or paper (pCT)

In the latest Titles Office Customer Information Bulletin (October 2006) samples of an electronic title search and Discharge of Mortgage. View samples

Under the EC regime, a title can flip flop between an eCT and a pCT.

An example is given that when a paper instrument is lodged affecting an eCT, if the controlling party of the Certificate of Title after the instrument is registered is not a Subscriber, a pCT will issue.

It is early days, the only current Subscribers are a handful of Financial Institutions during the current Phase 1 testing. FIs potentially are the biggest beneficiaries given the volume of paper titles and securities they must track and hold, which they potentially could convert to eCT.

Sell my castle - bidding for a listing

Vendors can bid for an agent's business by providing a description of their home they are about to sell.

The blurb on the Sell my Castle website is "Our goal is to help sellers get the best deal when they sell their property and provide a platform for agents to find prospective sellers".

Agents will bid for the business by quoting their estimated selling price +/- 15% and their commission rates across that range. Thus the agent might quote 2% for the expected selling price, a lower commission if the final price comes in at the lower end and a higher commission if they achieve over the expected selling price.

Agents will also get feedback from buyers and be star rated.

Click here to view their demo

Sell my Castle has been advertising on domain.com.au

Renters hit by excessive body corporate utility costs

crikey.com.au 11/11/06 Corporate lawyer Adam Schwab writes:

If you thought owners were the only people being rorted by body corporate managers you are wrong – renters are also falling victim to controversial practices being undertaken by body corporates and their managers. Most notably, the dubious practice (by a relatively small number) of body corporates avoiding residential tenancies and gas industry laws to charge renters exorbitant amounts for utilities.

In a recent submission to the Victorian Essential Services Commission, the Tenants Union of Victoria has claimed that certain Victorian building complexes (including several Docklands developments and one development in St Kilda) supply and charge for hot water to individual apartments through a central boiler rather than through individual meters (this is also known as an embedded network). The body corporate effectively purchases the hot water (well, they actually purchase the gas and re-sell the hot water) and proceed to charge renters a significantly inflated price for any "hot water" or electricity purchased. Body corporates are able to charge inflated prices for hot water because only gas prices (not hot water prices) are regulated by the Gas Industry Act.

Further, according to the TUV, the metering systems in these embedded networks are not required to adhere to legal standards existing for normal gas and electricity distributors, raising serious doubts about the accuracy and reliability of billing systems.

As the tenants are required to use the "embedded network" in their building, they have no choice but to pay the massively inflated monopoly rates charged by the body corporate (for example, tenants are not able to change to the supplier of their choice like Origin, TXU or Victoria Electricity to obtain the regulated rate paid by everyone else). Some utility bills are believed to be as high as three or four times the rates charged by utility companies billing tenants directly.

It is also alleged that at the time of entering into leases, tenants are not made fully aware that the utility rates charged by body corporate will be far greater than if the tenant were able to go direct to the retailer.

While the TUV have recently been successful before the Victorian Civil and Administrative Tribunal in having certain charges relating to embedded networks reversed, it is believed that the practice is still continuing – with some tenants being unaware that they are being charged grossly inflated amounts for basic utilities.

Why selling online is taking off

Jeni Harvie. The Australian 28 October 2006

“I just sold my house. No big deal really, except that it was done entirely online. The buyer is an Australian living in England who is returning to take up an academic posting in a few months.
She found the house through the internet, she contacted the real estate agent by email, she downloaded the virtual tour, we haggled over the price (via email) and the deal was closed.”

It is the age of ecommerce and it is booming. Australians are logging on and buying up big. And they can almost anything their heart desires, from a magnificent Wallypower motor yacht ($37M) to a bottle of 1951 Penfold Grange ($69,500).

Last year researchers ACNeilsen estimated that Australian online shopping market was worth $7.6 billion and growing at about 40% per year. The survey showed the highest sales were airline tickets, not far behind were DVDs, games and books. The research group Forrester estimates that by 2010, nearly 46% of total travel sales will be booked online, second only to computer hardware/software at 55%.

Lastminute.com.au is riding the wave in the travel industry. Established in 2000, it has doubled its turnover in the past two years. Their general manager says lastminute’s main demographic is 35-45 year old females earning more than $80,000 a year.
“They are not looking for a bargain but want something reasonably priced,” she says. “They want to do something spontaneous and fun. They can log on at night after work and everything is at their fingertips.”

Aggregration trend.

Jeni’s article also highlights the trend that consumers want ease of access to information at one or two sites, thus the popularity of lastminute.com.au and wotif.com.au. The same can be said for real estate, realestate.com.au and domain.com.au dominate the category.

The article continues

Technology analyst Bruce McCabe calls this “aggregation” where consumers have all the information they need at one site, and says the concept has been highly successful in boosting sales.
“Businesses now understand that people don’t like to go to a lot of sites,” he says. “They realize the internet is a very efficient avenue [for selling products]. The real power is having a single place for people to start. In terms of sophistication, Australian consumers and businesses are right up there”

The Lesson for Lawyers and Conveyancers. 247legal provides the consumer and the agent with a single portal for the sales documentation for real estate sales.

Sustainable housing

Stuart Maguire, a local environmentalist, demonstrates that it is possible to build a green sustainable suburban house in Melbourne.
Their nett electricity consumption from the grid is zero.
Plus their mains water consumption used only for drinking purposes is a meagre 23 litres per day. Water for the garden, toilets, showers, washing etc is either rain water or recycled grey water.
Stuart has demonstrated many of the problems making todays front page news can be solved through local individual action. So true and Stuart and his family ought to be commended.
The Age has a short video.

A Home Valuation Web Site Is Accused of Discrimination

Zillow.com, the Web site that provides free home valuations, has been accused by a coalition of community activist groups of undervaluing the homes in black and Latino neighborhoods.

Zillow said the charges were groundless. Zillow collects data from public sources on a home’s characteristics, tax assessments and recent sales and uses computers to make its estimate. It has not disclosed the algorithm that it uses, but the company, which is based in Seattle, said it did not use demographic data in the calculations. On its site, it notes that the estimate is not an appraisal, but a free research tool.

A Zillow spokeswoman, Amy Bohutinsky, said the site’s valuations, which it calls Zestimates, were intended for consumers and had never been marketed to real estate professionals. The company sees the tool as a way to empower consumers who in the past would have to rely on a real estate agent to make an estimate based on the sales of comparable homes in a neighborhood.

The company has said that estimates of homes at the high end and low end of the market tend to be less accurate because there are fewer sales to use as comparisons.

New York Times - full story