Conveyancing goes national

Does industry have cause to celebrate the Commonwealth government’s decision to step into the electronic conveyancing arena? COAG announced funding a national body to initiate a single settlements and registration regime starting October 2008.

The announcement is not a sweeping overhaul of the State’s land registries and state based property legislation. The announcement is not usurping the State’s control of property and property taxes. We won’t be seeing a single national property register, even if this would be the ideal outcome.

The heart of the decision is to end the long running saga of acerbic rivalry between states over the implementation of electronic conveyancing vis a vis the Registry Book of each State Land Registry.

A big part of the problem is definition. What is conveyancing and what defines electronic conveyancing? The current debate on electronic conveyancing has been led by initiatives of Victoria’s ECV project and their point of view has predominately been though the eyes of the Land Registry and in particular Victoria’s land registry. Simply put, electronic conveyancing cannot be limited by this narrow definition.

Conveyancing, moreover, covers the breadth of the property transaction –

vendor disclosure

1. vendor disclosure
2. contract
3. loan – application, credit, approval
4. due diligence by purchaser
5. transfer
6. mortgage & loan preparation & execution
7. mortgage discharge
8. settlement – one part financial, the other handing over title, discharge & transfer
9. revenue office requirements
10. registration

Traditionally for the past 150 years, since the introduction of the Torrens registration system, Land Registries role has been the custodian of land records defining parcels of land by recording Plans and recording the registered proprietor of those land parcels. These records are now electronic based records: Plans are imaged; and the registered proprietor and security interests are electronic records in the land registry’s database. Being electronic has meant a boom for the industry in gaining instant access to searching the Register. Land registries roles, however, have not been concerned with the financial or settlement aspect. One question we have to keep in mind is should land registries become involved in financial settlements?

The motion going forward is electronic conveyancing will be a series of electronic transactions. A single sale and purchase will be perhaps be up to 10 separate interlinked electronic transactions, with updating the registry electronically the final transaction. This being the case, the new National Commonwealth Body needs to define what its area of responsibility will be in the coordination of electronic conveyancing.

The key role the Commonwealth will play is providing the standard platform for a uniform approach to electronic lodgement of instruments with the State Land Registries covering: Caveats / Priority Notices; Withdrawal of Caveats; Discharge of Mortgages; Transfers; Mortgages; APRs & Survivorship Applications and perhaps Plans of Subdivisions.

The sensible starting point would be Caveats & Withdrawals followed by banks effecting refinance transactions with registration of Discharge & new Mortgages. A coordinated approach along these lines might take 12 to 24 months before you step up and tackle the registration of Transfers which carries a greater degree of risk and the issue of take up by industry practitioners. Caveats and Withdrawals are relatively low risk. By low risk, I mean the transactions don’t carry any risk associated with transfer of funds nor those risks associated with change of ownership. As well lodgement of a caveat / priority notice are relatively simple and can be effected by a single conveyancing practitioner, as they are already doing in Tasmania now.

Meanwhile Industry can deliver solutions for other aspects of electronic conveyancing ie vendor disclosure, contract, due diligence etc.

The outlier is who should deliver on the vexed question of financial settlements? Industry or Government? The middle bit. The jury is still out on this point. ECV would argue the financial settlement is a part and parcel of the Discharge / Transfer / Mortgage trilogy. COAG have flagged that financial settlement will be part of the government package. This point of view, however, ignores 150 years of history where Land Registries role is a custodian one. It is a point worth investigating further. Should the role of the Land Registry change with the introduction of electronic conveyancing by extending into becoming facilitators for the financial aspect of property settlements?

It is worth noting I believe the approach taken by ECV to the financial settlement is flawed. One aspect of ECV which really concerned me and that was their approach to disbursement of settlement funds. I can understand their decision but I disagree with the approach and that was – settlement funds can be disbursed by EFT / direct credit to any bank account or bank accounts. That is, it is an open system of payments. As a principal in a law firm, I would be entrusting my staff to enter the BSB and account details for client accounts and third parties which could be any number of accounts for any transaction. Fraud aside, I don’t believe my staff would be comfortable of entering account details as it would involve a lot of time checking and re-checking. As a principal, I am not comfortable with such an approach.

So in such an environment, how should payments be tackled? The system of payments ought to be a closed system. Disbursements of funds should only be to subscriber trust accounts registered in the system. This means payments will be disbursed to the Vendor’s mortgagee and the Vendor’s representative’s trust account. Other incidental disbursements could be made to council, water & body corporates, registries & revenue office accounts registered in the system. A closed system I personally would be comfortable with as my staff would be. It is then the responsibility of the vendor’s representative to disburse the funds due to the Vendor in the manner the Vendor directs from their trust account either by cheque(s) or direct credit(s).

I understand the money markets and share industry use a closed system of payments where payments are only disbursed to registered subscribers of the respective systems. And that seems to work well and works seamlessly.

Incidentally none of this answers the question whether Government or Industry should be responsible for the financial settlement aspect. The assumption thus far is government will take the lead. I am not convinced this is the correct approach to adopt. It is still open to Industry to take a lead in this area of what are in effect unattended settlements. In Australia, the tradition for the past 150 years has been for all parties to attend settlement and exchange payment for the title, discharge and transfer. But it has not always been the case. Many country practitioners attend to settlement by post. In New Zealand they don’t conduct physical settlements.

Industry need to explore further the question of unattended settlements. An unattended settlement might be underwritten by a title insurance policy. Title insurers would certainly be happy if this was the case. I would suspect industry insurers like the Victorian LPLC would welcome title insurance as currently legal practitioners carry the cost of mistakes (attributable to the practitioner). Under such a regime of unattended settlements, in effect you are separating the roles of settlement and registration. And perhaps this is how it should be done under an electronic framework.

All in all, the question still remains. Should Land Registries be expanding their current role beyond being the custodians of land records? The debate will continue.

The COAG decision is welcome (in fact it is great news) and I can see the role NECS has played will continue under the Commonwealth framework.

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