DiduSign? Why Lenders are exposed when their VOI goes stale

Marketlend Pty Ltd v Blackburn [2020] NSWDC 358

A recent NSW Court decision has struck down a wife’s digital signature, highlighting the importance of knowing exactly who was signing - whether on-line or on paper. A common misunderstanding of ARNECC’s VOI requirements leaves many Lenders exposed to similar claims. Fortunately new Government backed technology provides a solution.

The judgment in Marketlend Pty Ltd v Blackburn [2020] NSWDC 358, where a court set aside a digital signature, highlights the importance of identifying who was behind the signature – whether it is digital or wet-ink.

In the Marketlend case, the Court was satisfied that a husband used his wife’s DocuSign account to sign a loan document without her consent or knowledge. Before the digital laggards start warming up their defence of the traditional paper system, this is just a modern take on an age-old problem – it is as important to know who is behind the pen as it is the keyboard.

So, in home lending, where witnessing of the loan agreement execution has long ago fallen away from mainstream use by lenders, and witnessing of the mortgage execution has also disappeared in those states that allow digital mortgages – just how confident can lenders be about who is granting security for the loan, in paper or online, in the absence of a witness?

ARNECC, the organisation charged with overseeing the regulatory landscape relating to mortgage execution and registration, have for some time required the need to take ‘reasonable steps’ to verify the identity of the mortgagor. This can be done by either:

  • following the VOI Standard, which requires a face-to-face in person identification, or
  • taking some other ‘reasonable steps’

The attraction of using the VOI Standard is that the lender will be deemed to have taken reasonable steps (including face-to-face identification), whereas the onus will be on them to prove they have taken reasonable steps should they use some method other than the VOI standard.

Easy – just do face-to-face and sleep easy? Not quite.

While there has been significant focus on the face-to-face aspect of the VOI Standard, most have failed to appreciate the importance of timing of the identification. In its guidance note, ARNECC states that the lender “must take reasonable steps to ensure that it is the mortgagor that was identified that grants the mortgage”.

It’s those last four words - that grants the mortgage - that are key, and that will come under the scrutiny of a Court if lenders don’t address it first. Identifying the mortgagor at some earlier stage is not the same as identifying the person who actually signs the mortgage.

In the Marketlend circumstances, even if the lender had conducted a VOI of the wife during the application stage, it is difficult to imagine any Court allowing a subsequent fraudulent execution by the husband to stand, just because a face-to-face VOI was conducted earlier. But had a VOI had been done at the point of signing, the fraud would have been prevented.

So forget about digital and bring back witnesses? No.

Not only do consumers now accept digital transactions, but they have come to expect it. Even if we could deal with the logistics (and creepiness) of having a witness looking over our shoulder at our keyboard, we shouldn’t.

Despite the fact the digital signature was set aside, the Marketlend case is an endorsement of digital signing technologies; such was the level of forensic data available about what was signed, from where, and on what device.

What broke down was the lender’s use of the technology, and simply the failure to verify who was signing.

The digital data available in that case was far superior to a traditional witness process. Witnesses themselves can be fabricated, or fooled by an imposter or forgery. In fact, a university study conducted at Sydney Passport Office showed that Australian Passport Officers falsely accepted 14% of 'fraudulent’ photos in a face-to-face identification process. This trial clearly exposed the human brain’s difficulty to cope with changing facial characteristics as we age – while our ID photo is forever young.

If Passport Officers miss 1 in every 7 imposters in person, what do we make of COVID induced calls to retain the emergency provisions that currently allow for witnessing wet-ink signatures over video-conferencing technologies? Not only is the identity more in question, but so is the document being executed.

Witnessing needs to remain removed from the mortgage execution process without sacrificing the security feature of an independent party validating the signer’s intention to be bound to the document.

The Federal Government has created Australia’s Trusted Digital Identity Framework for precisely this type of scenario – identifying the person behind the keyboard, validating their facial biometrics against the Australian Passport Office’s database, and then binding that person’s identity to their digital signature.

That really would be reasonable steps to identify the person that grants the mortgage.