Proctor : November 2017
21 PROCTOR | November 2017 Gordon Perkins discusses how practitioners can prepare themselves for the change to Queensland’s mortgage forms to the new National Mortgage Form that is mandatory after 2 March 2018. have taken the trouble to create a computer program, which tailors the mortgage to comply with each state and territory’s requirements. The computer-generated form is also available at ARNECC’s website. It includes a feature to allow practitioners to save the data file for a partially completed mortgage on their computer and upload it to the form when you wish to complete it. There is a link to the ARNECC online form on the Department of Natural Resources and Mines’ Titles Registry forms web page business.qld.gov.au/ industries/building-property-development. The advantage of this form for the occasional transaction is that it changes the document to comply with the jurisdictional nuances for a mortgage of land in another jurisdiction. The NMF has no schedules, but the relevant panels can expand to accommodate additional information. For example, all secured properties can be described in the mortgage itself and there is no need for an enlarged panel. This also means it is not possible to attach mortgage covenants to the back of the form, they must be in a standard terms document linked to the form by the document’s registration number (as for existing mortgages) or included in the form itself as additional terms and conditions. Electronically lodged mortgages, for example through PEXA, and paper-based mortgages in New South Wales, Northern Territory, Victoria, South Australia and Western Australia have a 4000 character limit on the additional terms and conditions. Foreign jurisdictions also have their own nuances you need to be aware of when preparing mortgages for use interstate. Even though there is no restriction on the amount of characters included in a Queensland paper-based mortgage, the online form has a limit on the number of characters which will fit in the additional terms and conditions field. For example, if you cut and paste your mortgage covenants into the form, only about one page of covenants will be retained and the rest are likely to disappear into the ether. The input field for the additional terms and conditions in the online form is two-lines deep, making it very difficult to check what has been entered without printing the form. As the online form is XML based, only characters can be entered and there are no facilities to accommodate formatting of the text including underlining, bold and italics. However, this form is convenient for the occasional mortgage if you have registered a standard terms document, or you are preparing an interstate mortgage. Practitioners can also create their own Queensland only mortgage from the template on the Titles Registry Forms web page. It can only be used for paper-based transactions in Queensland, which currently have no limit to the number of characters you can insert into the additional terms and conditions section of the mortgage. As the form is a Microsoft Word template, you have the opportunity to format the text in the additional terms and conditions, if you adhere to the font type and size specified in the design specifications, which is Arial 11pt. You may recall that in late 2015, the registrar aligned the Queensland verification of identity requirements for mortgagors with the national model for the verification of identity of people dealing with land. ARNECC was established by the registrars for electronic conveyancing, so at some point we can expect Queensland to require all mortgages to be lodged electronically. It would only take a stroke of a pen for the registrar to follow New South Wales and Victoria in mandating the electronic lodgement of mortgages. Those states have done so for authorised deposit-taking institution (ADI) to ADI (bank, building society or credit union) refinances of consumer and commercial mortgages from 1 August 2017. There are only a few exceptions that are allowed. Dealing with these changes As a profession, we can adopt the use of standard terms documents for all mortgages. This will mean considering the consumer laws and making sure the forms are clear and concise. It is a professional courtesy to present clear, concise, readable and well- drafted documents to parties signing them. This avoids some of the formatting restrictions in the mortgage form, and is easier to implement than drafting a compliant national mortgage, or for national practices lodging mortgages in multiple jurisdictions. It is also likely to ease the transition to electronic lodgement of your mortgages when the registrar decides to mandate electronic lodgements. For transactions where mortgage covenants are negotiated, we can consider preparing and lodging tailored standard terms documents where no lodgement fee applies in Queensland, or if only some modifications are required, using a standard terms document and include the modifications in the additional terms and conditions field of the mortgage. There is no provision for parties other than the mortgagor and mortgagee to sign the mortgage unless the registrar will allow third-party executions in the additional terms and conditions field. It is not clear if this will be allowed, as it won’t work in an electronic mortgage, and the character restrictions in the online form will make this impractical for that particular form. Instead of a third-party mortgage including loan covenants or third-party debt acknowledgment, practitioners can prepare a first-party mortgage securing the mortgagor’s obligations under a guarantee of the debt. The National Credit Code and the various codes of practice for ADIs only allow third-party mortgages in this form, meaning that mortgages directly securing a third-party debt should be rare. In the form, font sizes and margins are mandated and the form is not scalable. This means that practitioners should print and forward mortgages for execution or send them in an electronic format that will not shrink the document to fit the page – such as a Microsoft Word document that has editing restricted. It is important to note that the default printing settings for Adobe PDF documents are ‘shrink to fit’ and if not changed, will shrink the mortgage by at least 5%, making it non- compliant with the design specifications. In an increasingly litigious society focused on consumer protection, one day there will be a claim by a disappointed party to a transaction that the mortgage was not valid because it did not meet the design specifications. Regardless of whether or not a claim has merit, it will cost the practitioner. It is easier and safer to comply with the design specifications from the outset. Summary The changes are most likely to affect those practitioners and mortgagees, especially financial institutions, who currently include all of the terms of their mortgages in a schedule to the mortgage, or who have multi-jurisdictional practices. We must adapt to the new format as soon as possible to avoid the embarrassment of being unable to lodge a client’s mortgage once the National Mortgage Form becomes compulsory. Property law Gordon Perkins is special counsel at Mullins Lawyers.