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Lenders are increasingly considering options to facilitate the execution of loan documents. Transfer delays and pandemic restrictions have certainly prompted lenders to think outside the box. So how does a lender securely offer their borrowers the ability to electronically sign a loan file? Can this be done for all loans? In all states and territories?
In this article, we will explain the applicable laws and our recommendation for safe execution of loan packages electronically.
Electronic execution laws
The starting point of our discussion should of course be the current electronic execution laws in force in each state and territory and what they allow.
Although mortgage law is largely state-owned, enforcement by companies under section 127 of the Companies Act 2001, which ensures applicability, is subject to federal law.
There is currently in force the 2021 Law on Amendments to the Treasury Laws (Measures No.1) of 2021 which allows the signing of documents by companies under section 127 electronically and by split execution. Execution is always required either by the single director (for single director companies) or by two directors or one director and the secretary (for multiple director companies), but these persons can sign separately by electronic signature at different times. Once all the required persons have signed, the execution of the company takes effect under section 127, which offers each other party to the document the benefit of the assurance that the execution will be valid and enforceable.
Unfortunately, this legislation is temporary and is set to expire on March 31, 2022. However, watch this space, as the federal government has attempted once to make these measures permanent and will undoubtedly try again, we hope, before March 31, 2022. .
State and territory legislation
In addition to the execution by the companies under article 127 of the
Companies Act 2001, the methodology of execution of acts is subject to the laws of the state or territory of jurisdiction. This will be the jurisdiction indicated in the document, not necessarily where each party is located. For loan agreements, this could be where the lender is located. For land mortgages, this will be where the property is located.
Victoria leads the pack by making permanent its laws allowing the electronic enforcement of acts and agreements by both individuals and businesses. Mortgages to be registered by PEXA can also be signed electronically. Remote observation of statutory declarations is also available.
Queensland has introduced laws which, like Victoria, allow the electronic execution of acts, agreements electronically by both individuals and businesses. PEXA mortgages can also be signed electronically and tele-testimony of statutory declarations is available. Unfortunately, these laws are only temporary and are set to expire on May 1, 2022, but the Qld government is working to make them permanent.
New South Wales has been slow to get started, unfortunately not yet having many e-enforcement laws. Although electronic performance of acts by individuals is permitted, there is uncertainty as to whether this extends to businesses. There is a pilot program in place to allow video testimony of documents, including deeds, agreements and statutory declarations, but it will expire on January 1, 2022.
Check with your lawyer for the ability to electronically sign and testify documents in your state and territory of jurisdiction as well as any updates that arise from time to time, as the nature of the current pandemic is that laws facilitating the execution of documents are constantly changing.
Updating loan documents for electronic execution
While the ability to sign electronically is a matter of law and, in most cases, should not require anything, in particular, to be changed in the document, we recommend that you make some changes to your loan documents for electronic purposes. execution:
- Electronic exchange agreement – We recommend that in each loan contract, general guarantee contract, surety bond and other document the usual counterparts clause allowing the execution of the document in consideration. For electronic execution, this clause should be expanded to indicate that the document, or its equivalents, may be executed and will be valid and binding if executed by electronic signature in circumstances where the laws of the jurisdiction of the document permit. , and that each party undertakes to ratify, upon request, its signature of the document.
- Deletion of witness signature and inclusion of acknowledgment of receipt – we recommend that in the section where each party must sign the document, the space for the testimony be deleted (as it is no longer required) and words be inserted to the effect that the signing party undertakes to sign by electronic signature and that by affixing his electronic signature agrees to be immediately bound by the provisions of this document as if it were signed by him in wet ink.
Recommended signing procedure
It is important that while executing the loan package certain issues are taken into account to ensure safe and enforceable execution. We recommend the following execution procedure:
Step 1 – Choose electronic execution software
It is recommended to use electronic signature software controlled by the lender, rather than allowing individuals to affix signatures using their own electronic enforcement systems. The software you choose should contain protective mechanisms such as a PIN code and / or other security features that act to provide at least an initial presumption that the document has been signed by the person concerned.
Step 2 – The borrower should fill in their email details in the loan application.
We recommend that you ask the borrower to fill in the personal email address and mobile phone number of each person to be signed in their loan application. This will be the e-mail and number to which to communicate the signature request and the security PIN, respectively. Each person’s contact details should be independently verified by contacting each person. This is especially important for guarantors who have not signed the loan application.
Never allow the same email address for more than one person and never agree to send a PIN code to a spouse’s cell phone. These circumstances may well lead to the presumption that it was the spouse who executed the documents. Always take into account what your software allows and introduce any additional measures you deem appropriate.
Step 3 – Obtain a Legal Advice Certificate
Since legal advice must be received before someone signs the relevant document, if you need certificates of legal advice for guarantors, for example, we recommend that an electronic copy of the loan documents be provided to the guarantor’s lawyer and that the legal advice certificate be completed and returned before the electronic enforcement package is issued.
Step 4 – Submit the signature request
When sending an electronic enforcement request, if the software permits, we recommend that the email request contain a message explaining what is being sent, a recommendation for legal advice, and a disclaimer that the documents will be considered binding when signed electronically.
Different software services will provide varying functionality to allow others to view or interact with the documents, which could include lawyers for the borrower or the guarantor. This could avoid a dispute over which documents were signed or the need to separately provide the lawyer or client with a copy of the signed loan file (which is often forgotten).
Step 5 – Get a Mortgage Signed in Wet Ink
Although some jurisdictions allow electronic recording of mortgage execution by PEXA, we recommend obtaining a wet mortgage in case it becomes necessary to move to a paper settlement or to deposit the mortgage at the counter at a later date. . The verification of the identity of the mortgagor, which must be carried out as part of the execution of the mortgage, is also best done in this way.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.