This fortnight I want to warn you about a bill which is on its way through State Parliament which will if passed means your mortgage repayments will probably increase. It also has other nasty surprises.
The bill is the Real Property And Conveyancing Legislation Amendment Bill 2009. Its first object according to the governments’ explanatory note is to affirm the principle of indefeasibility of title which is at the heart of the Torrens system. Or as Sir Garfield Barwick said many years ago (And as I have quoted often) the Torrens system is not a system of registration of title but of title by registration But the Bill doesn’t do that. What it does is make a rather bland statement that by providing that the Torrens principle prevails over any inconsistent provision of any other Act or law unless the inconsistent provision expressly provides that it is to have effect despite anything contained in section 42. So far well and good. Then it exempts a whole range of laws from that principle- indeed almost all the laws from which challenges to the Torrens system have arisen. So far then the new bill is pretty pointless.
But the next object is what causes the problem and will cost you and me more. The next object is said to be to limit the amounts recoverable from the Torrens Assurance Fund and thecircumstances in which compensation will be available
The Assurance Fund is a sort of insurance scheme where people who have lost land or money because of the Torrens scheme can make a claim. Its funded by a $2 levy on every land transaction registered at the Department of lands (those fees start at $92 and go up).
The government says the Fund has had to pay out on mortgage frauds and that most of these frauds come from ‘low doc’ mortgages which are at high interest rates. IT does two things. The first is to limit interest and costs that a mortgagee can recover if the mortgage was obtained by fraud in particular the government says in its explanatory note the interest and costs component of a claim will be limited to be be 2 per cent above the interest rate charged on most loans by reputable lenders in Australia. But in fact the rate is pegged at 2 per cent above the official cash rate. Most banks charge at least that if not higher (At the moment the cash rate is 3% the big 4 banks all charge about 5.44%
The second thing the bill does is to make lenders check more thoroughly on who the borrowers are. The bill says that ‘as a minimum" lenders will have to undertake the 100 –point check that the Federal government already requires. That’s a worry- what else will the state want? That is not known. And the next worry is that the lender will have to keep the records for the life of the loan. IF the lender doesn’t keep those records and produce them when the Department of Lands wants then the Department can cancel the recording of the mortgage (what happens if the lenders office is damaged by fire or flood?)
All of this will add to the lenders charges and if it cant recover the cost of mortgage frauds then the cost to the rest of us will rise.
There are other changes
It’s a bad bill. There are other changes which affect easements which I will write about next time.
In the meantime read more about the bill and its effects: the New South Wales Parliament website has a full text of the bill http://www.parliament.nsw.gov.au/prod/parlment/nswbills.nsf/0/2d6ce9ccb4d3a56dca2575830021a477/$FILE/real.pdf
It also has its legislation review committee’s comments (which criticise the bill in quite another way which I will also write about next time)
http://www.parliament.nsw.gov.au/prod/PARLMENT/committee.nsf/0/39dedc97f2f6a09cca25758a000cc771/$FILE/2009.4%20Legislation%20Review%20Digest.pdf
(local papers article for week of 20.4.09
Monday, May 4, 2009
The Real Property and Conveyancing Legislation Amendment Bill (2)
Last time I wrote of some of the bad features of the Real Property And Conveyancing Legislation Amendment Bill 2009.
I wrote mainly about the Bill’s restrictions on the Assurance Fund and its effect on mortgages. I have a bit more to say about this before I turn to the Bill’s effect on easements.
Already some mortgagees are turning to private "title insurers." I wrote about these people a long time ago but briefly they are American companies which arose because of the very peculiar title system in the USA which has the worst features of the old system title we inherited from England and nothing much else. The American title insurers insure against defects in title and things like encroachments and some breaches of laws – e g a breach of the building codes.
There are three problems with these. The first is that they are very expensive. The American lenders (most of which are now in financial problems themselves) insist on title insurance- except in Iowa where there is a state government scheme very much like the Assurance Fund our state government runs. Conveyanceing in Iowa is an average of $1000 (that’s US and the equivilent here is about $1500) cheaper then anywhere else in the USA. That is title insurance adds a huge amount to the cost of conveyancing- perhaps more than the average total solicitor or conveyenacers fees in this state.
The second is that only about 4.3% of the premiums are ever paid out in claims. The rest is used in kickbacks (the US Senate had an investigation into these practices last year; two years ago Conneticut fined title insurers $700,000 for the kickbacks), maintaining their own multiple land registries (which the government does here and in Iowa at a fraction of the cost) and most of all in profits. It’s a very inefficient scheme because so much money goes on other purposes. Perhaps that’s really just another way in which title insurance is expensive.
The third –and only just emerging now is that despite the high profits the companies are almost bankrupt. The third largest company in America Land America is bankrupt and the receivers are selling off the assets. What happens if you want to make a claim under the policy remains to be seen. The other four main title companies all reported huge losses (most over 100 million US dollars) last year.
The problem with the Bill is that mortgagees may seek the ‘protection’ that the private title insurers advertise. And that will increase conveyancing costs. After all that is exactly what happened when the government turned the home building insurance scheme over to private enterprise. Ever since builders had to be licensed (the early 1970s) the government had a scheme which covered people for major building faults. IT cost $200 per building –a fee levied by local councils on each building approval and it covered people for most problems. IT was replaced by private insurance in the mid 90s. Since then the cost has increased enormously (in fairness though so has the cost of living) and the cover is now much less..
Perhaps that’s enough for this week and I will write about easements next week. But in the meantime I urge you if you want cheap conveyancing tell your state MP that you want him to vote against Real Property And Conveyancing Legislation Amendment Bill 2009.
Further reading on title insurance
A critical look at the whole idea
http://www.mtgprofessor.com/A%20-%20Title%20Insurance/what's_wrong_with_the_title_insurance_industry.htm
The kickbacks in Conneticut http://www.ct.gov/cid/lib/cid/Reinerkickbacksettlement.pdf
The financial crisis http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2346783320081023?pageNumber=2&virtualBrandChannel=0&sp=true
(local papers article for week of 4.5.09
I wrote mainly about the Bill’s restrictions on the Assurance Fund and its effect on mortgages. I have a bit more to say about this before I turn to the Bill’s effect on easements.
Already some mortgagees are turning to private "title insurers." I wrote about these people a long time ago but briefly they are American companies which arose because of the very peculiar title system in the USA which has the worst features of the old system title we inherited from England and nothing much else. The American title insurers insure against defects in title and things like encroachments and some breaches of laws – e g a breach of the building codes.
There are three problems with these. The first is that they are very expensive. The American lenders (most of which are now in financial problems themselves) insist on title insurance- except in Iowa where there is a state government scheme very much like the Assurance Fund our state government runs. Conveyanceing in Iowa is an average of $1000 (that’s US and the equivilent here is about $1500) cheaper then anywhere else in the USA. That is title insurance adds a huge amount to the cost of conveyancing- perhaps more than the average total solicitor or conveyenacers fees in this state.
The second is that only about 4.3% of the premiums are ever paid out in claims. The rest is used in kickbacks (the US Senate had an investigation into these practices last year; two years ago Conneticut fined title insurers $700,000 for the kickbacks), maintaining their own multiple land registries (which the government does here and in Iowa at a fraction of the cost) and most of all in profits. It’s a very inefficient scheme because so much money goes on other purposes. Perhaps that’s really just another way in which title insurance is expensive.
The third –and only just emerging now is that despite the high profits the companies are almost bankrupt. The third largest company in America Land America is bankrupt and the receivers are selling off the assets. What happens if you want to make a claim under the policy remains to be seen. The other four main title companies all reported huge losses (most over 100 million US dollars) last year.
The problem with the Bill is that mortgagees may seek the ‘protection’ that the private title insurers advertise. And that will increase conveyancing costs. After all that is exactly what happened when the government turned the home building insurance scheme over to private enterprise. Ever since builders had to be licensed (the early 1970s) the government had a scheme which covered people for major building faults. IT cost $200 per building –a fee levied by local councils on each building approval and it covered people for most problems. IT was replaced by private insurance in the mid 90s. Since then the cost has increased enormously (in fairness though so has the cost of living) and the cover is now much less..
Perhaps that’s enough for this week and I will write about easements next week. But in the meantime I urge you if you want cheap conveyancing tell your state MP that you want him to vote against Real Property And Conveyancing Legislation Amendment Bill 2009.
Further reading on title insurance
A critical look at the whole idea
http://www.mtgprofessor.com/A%20-%20Title%20Insurance/what's_wrong_with_the_title_insurance_industry.htm
The kickbacks in Conneticut http://www.ct.gov/cid/lib/cid/Reinerkickbacksettlement.pdf
The financial crisis http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUKN2346783320081023?pageNumber=2&virtualBrandChannel=0&sp=true
(local papers article for week of 4.5.09
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