Fraud and Electronic Settlements (NECS)

FRAUD IN CONVEYANCING

Fraud and Electronic Settlements (NECS)

As most conveyancers will be aware, Australia is heading towards a national electronic conveyancing system, referred to as the National Electronic Conveyancing System (NECS). The NECS is described as “Australia's joint government and industry initiative to create an efficient and convenient way of completing property based transactions and lodging land title dealings for registration”. The proposed NECS is therefore somewhat of a misnomer as it deals with the settlement and registration aspects of the conveyancing transaction rather than a model for electronic ‘conveyancing’ as a whole. For example, the proposed NECS does not cover preparation and exchange of contracts for sale, pre-settlement investigations, procurement of any insurances required by purchasers, such as title insurance, creation of loan documentation or processes for examining and registering instruments once lodged with a Land Registry.

 

Essentially, a conveyancer using the NECS will electronically:

• prepare dealings and related instruments to register changes in ownership and interests

• settle financial transactions (including payment of duties, taxes and any disbursements)

• lodge their dealings with the appropriate Land Registry

• receive confirmation of dealing lodgement and registration.

 

One question which is often raised is whether the proposed NECS will increase or decrease the scope for conveyancing and mortgage fraud. Certainly, the NECS model has not been designed to specifically deal with the allocation of fraud risk. For example, it is stated on the NECS website that “the NECS design is based on, as far as possible, maintaining the existing risk allocations and management philosophies in the paper-based conveyancing and settlement processes.”

Therefore the NECS model does not appear intended to specifically prevent the types of fraud which are currently occurring in the paper based system from occurring in the electronic based NECS on the basis of the re-allocation of risk.

Conveyancers will still be responsible for the registration of title documents as part of the conveyancing transaction and will be responsible for identifying their clients and acting in their best interests. Although it is difficult to draw any reliable conclusions given that the NECS is still in the development rather than implementation stage, a recent study based upon the current NECS model has concluded that the types of fraud currently occurring in the paper system, ie, forgery of signature and identity theft, fraud by solicitors and conveyancers, can continue to occur in the proposed NECS.

In relation to forgery of signature it is noted that whilst NECS certifiers will digitally sign mortgage and title instruments on behalf of their clients, NECS requires a client authorisation form to be completed and physically signed by the client, in which case, fraud may still be perpetrated by a fraudster who forges a signature on the authority and the witness does not follow the proper attestation or the attestation is also a forgery. In this respect the paper concluded that “the only difference between the paper system and the NECS is that in the paper system, the forgery is on the land title document, whereas in the NECS, it is on the authorisation form”.

 

Identity fraud can also continue to occur in the NECS and the onus will continue to be placed on the conveyancer as a subscriber to the NECS to properly identify the client. In this regard, the NECS will require conveyancers to provide certifications on electronic instruments prior to signing them on behalf of their clients. The conveyancer must certify that the “prescribed procedures” in verifying the identity of the client have been followed, and the conveyancer is holding a properly completed and signed authorisation form and has thoroughly and carefully examined and retained copies of all identification documentation.

 

The identity certification procedure is intended to give all participants in the NECS confidence that the practitioner has followed the prescribed procedures to verify the identity of the client and “may protect the practitioner from a negligence claim if the identity is subsequently proven to be false”.

 

Conveyancers should therefore be mindful that failing to follow the prescribed procedures will almost definitely result in a finding of negligence.

 

Although the precise nature of the prescribed identification documents is yet to be determined it is anticipated that there will be some move towards uniformity across the States and Territories and may result in a 100 point system similar to that under the Financial Transaction Reports Act 1988 (Cth) being adopted.

 

It is argued that the NECS may also introduce new opportunities for fraud within the conveyancing industry, namely, the unlawful use of a conveyancer’s digital signature certificate (as a certifier in the NECS) to digitally sign documents. That is, a fraudulent person with access to the NECS, such as a law clerk or other employee, would be able to prepare mortgage documentation, digitally sign the document on behalf a client and lodge it for registration.

 

 

Extract from a paper presented at the Australian Institute of Conveyancers 2007 National Conference, March 2007

By Paul Watkins

General Counsel, Australia

Stewart Title Limited