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Guidance Notes: Code of Conduct for Settlement Agents

Client identification verification and real estate fraud prevention

Introduction

Identity fraud and scams are increasingly prevalent throughout the community, and the property industry is not immune to falling victim to such events.

Two highly publicised incidents in September 2010 and March/April 2011 resulted in properties being sold in Western Australia without the knowledge and consent of the lawful property owners.

These sales were undertaken by real estate agents who were contacted by criminals masquerading as the true owners.  In both cases, the properties were tenanted and being managed by a real estate agent, prior to a fraudulent request being made to sell the property. 

Also, in both cases, the criminals masquerading as the owners then became clients of settlement agents after an offer to purchase was accepted. A range of communications between the fraudsters and settlement agents then occurred with the entire proceeds of the sale being subsequently disposed to the fraudsters and the transfer of land to the unsuspecting WA based buyer.

To avoid devastating loss it is therefore imperative that settlement agents conduct their own ID checks on owners of property or people acting on their behalf and not just rely on a real estate agent’s referral.

Similarities in both frauds

While the circumstances relating to the fraudster’s dealings with both settlement agents were slightly different, there are some distinguishing features in both cases:

  • the settlement agents received referrals from real estate agents who had prior relationships with the real owners as a result of acting as their property managers;
  • despite masquerading as owners of property in Western Australia, the fraudsters did not appear to know or fully understand the process of settlement in this state, which resulted in delays in them providing correct documentation and signatures to effect settlement;
  • the fraudsters corresponded with the settlement agents via a generic email address eg hotmail, yahoo; and
  • the fraudsters sought an urgent settlement to enable them to invest in a petro chemical plant and asked that the proceeds from settlement be deposited in a bank in China.

The need to remain vigilant in all cases

In the two previous fraud cases the real owner of the property was overseas when the fraud was committed.

It is not necessarily the case that any future property fraud attempts will occur along the same lines as the two recent cases.

For example, it may not always be the case that a fraudster is out of the state, but instead approaches an agent in person requesting the sale and settlement of a property.  It may even be that the property to be sold and settled is currently occupied by a person who masquerades as the owner, or alternatively the property for sale is vacant land. 

A further possibility is that the person wanting to sell the property is a party to either a family/business dispute or fraud and has inside knowledge of the parties.

Therefore settlement agents need to be alert in all sales situations.

For all of these reasons it is imperative that:

  1. When effecting the settlement of a property, a settlement agent confirms he/she is dealing with the true owner, or the person legally entitled to sell the property.
  2. At all times when dealing with a client, a settlement agent is vigilant to ensure they continue/are dealing with the true owner or the person legally entitled to sell the property.
  3. Documented procedures are in place and consistently applied to ensure verification of identities for all settlements.
  4. Appropriate arrangements are in place to ensure security of documents and privacy of clients’ information.

What is being done to minimise the risk of property fraud?

Action is being taken on several fronts.

  1. Amendments have been made to the Codes of Conduct for settlement agents (and real estate agents) to require Client Identity Verification (CIV) to be undertaken.
  2. Changes have been implemented by Landgate to improve identity security through new witnessing and CIV requirements for overseas sellers in the execution of transfer of land documents. A new form of caveat to prevent improper dealings has also been introduced.
  3. In addition, Landgate is preparing an identity certification regime that will apply to all transferors, regardless of where the seller resides.
  4. All lenders have been alerted to ensure careful scrutiny before releasing mortgages over Certificates of Title.
  5. In 2012, CIV and other procedures to manage fraud risks will be included as part of mandatory Compulsory Professional Development training.

Amended Code of Conduct

To minimise the risk of successful property fraud, the Settlement Agents’ Code of Conduct (the Code) has been amended effective from 1 November 2011.

The Code has been amended to include a new rule which requires settlement agents to exercise due care and skill.  The insertion of this requirement brings the Code more into line with the Agents and Sales Representative Code of Conduct and the Australian Consumer Law.

As a general practice, given recent events agents should exercise due care and skill in taking measures to reduce the risks of identity fraud, to ensure documents are carefully evaluated and procedures are in place and applied to safeguard transactions.

A new article has also been included in the Code. Under the amended Code, as soon as practicable after receiving instructions to act in the settlement of a property and prior to effecting settlement, an agent must ascertain the names of the owner(s) of the property and make all reasonable efforts to: verify the identity of the owner(s); the identity of the person issuing the instructions; and their authority to settle (transfer) the property.

These Notes are a guide to assist agents in their compliance with the amended Code, however, are not exhaustive.

In carrying out CIV checks, for overseas sellers, settlement agents must follow CIV protocols issued by the Registrar of Titles for CIV and witnessing requirements if transfer documents are executed outside of Australia.

Until such time as the Registrar issues further CIV protocols for all other property transfers, settlement agents should put in place, as a minimum, a 100 point CIV check to verify the identity of the owner(s) or the identity of the person issuing the instructions to meet the requirements of the amended Code.

Once the Registrar of Titles issues instructions for CIV for non overseas sellers then those protocols for identification will replace those in this guidance note.

Guidance Note 1

Guidance Note 2

Guidance Note 3

A PDF version of these Guidance notes is available here