Aside from the many risks which impact upon an enforceable mortgage deed, title fraud is one of the main risks faced by lenders and lawyers in the property sector.
Last year it was documented that property fraud cost the UK Land Registry alone more than £70 million over 14 years – not a number that Government nor HM Land Registry can swallow lightly.
Following the Land Registry’s announcement on enabling the Mercury Signing rules during lockdown, there seemed to be some confusion among some media as to whether a digital signature deemed a mortgage deed validly executed.
Is the Mercury rule changing the landscape for conveyancing?
In practical terms, the Mercury signing approach means that an individual can give a digital signature which has been imported into a document and that document or deed will be accepted as validly executed.
However, this does not change the legal execution process for mortgage deeds, which being deeds that transfer an interest in land, must comply with Land Registry statute. Therefore unequivocally, to be enforceable in law, mortgage deeds require a wet signature that is physically witnessed.
Jonathan Newman, senior partner at Brightstone Law, explains: “It is important to clear up the first point as to whether we are referring to a document or deed and the specific characteristics of the deed, for example, a deed which deals with the disposal of an interest in land – i.e. a mortgage deed.”
“The key point in the Land Registry’s announcement which seems to have been missed is that mortgage deeds “must still be signed in pen and witnessed in person” to be valid and enforceable.”
In the Mercury Tax Group case (High Court, Nov 2008), where substitution of the signature pages from a previous deed affected the validity of the final deed, the Judge held that “adding a signature page to a deed or using a signature page from a previous draft of the deed in a final draft would not be valid”.
This in turn means that an endorsement to the integrity of a deed is required to ensure the document that is being signed is a true copy of the final deed.
Newman clarifies: “There are two stages to create an enforceable mortgage deed, first its execution, and second, its registration.
“I am not aware of any lawyer in the land that will take the risk of receiving an electronic signature that may or may not be associated with the true deed and may or may not have been signed with a wet signature, by the individual applying for a mortgage – then submitting it for registration purposes as being a true copy of the original, with all the implications that flow from their certificate.”
Therefore, in Newman’s view nothing has practically changed: “Even if an electronic copy is issued to the Land Registry, the solicitor will still have to certify to its integrity, when they make the online application to the HMLR.
“Solicitors are not going to certify a copy of the original, if they do not have possession of the original copy, and / or evidence that it has been physically witnessed and executed as such.”
The purpose of a deed is to mitigate the risk
Title fraudsters use forged documents to transfer a property into their own name or by impersonating the registered owner with false ID.
Christopher Taylor, chief executive officer at Titlesolv, comments: “As an underwriter of risk, fraud is one of the main dangers for our lenders and our insurer. A physically witnessed, wet signature on a mortgage deed is fundamental to ensuring this risk is mitigated.”
Taylor suggests that there has been some confusion around what the Mercury signing approach actually means for the industry: “The Mercury signing approach is not good news for all – lenders must be certain that their assets are protected and that a recovery can be made if the worst happens.
“In order for law firms to protect themselves from recovery action where a mortgage deed is unenforceable, deeds must have a wet signature and that on application of the mortgage deed, it is verified that the electronic version is a true copy of the original.”
Can you see a future for digital signing of deeds?
“Be careful what you wish for” says Newman. “If digitalisation is what the people want, but the Land Registry decides the indemnity risk is too great for them, and will not underwrite it, then the current indemnity for fraud provisions may be lost.”
Taylor says: “The only time I can see it changing is when we can use authenticated digital signatures. The Scottish have achieved it with their lawyers but, of course, we need something fail-proof for the members of the public.
“As technology evolves, this may become possible. But again, having a physical witness present remains an issue.”
Your final word for lenders?
Whilst the final submission to the Land Registry via digital signature is helpful, physical witnessing cannot be avoided.
In its Covid-19 update the Law Society guidance confirms in point 2. Physical Witnessing “HM Land Registry practice will continue to reflect its view that it would be unsafe to accept any form of witnessing other than contemporaneous, physical witnessing, as being sufficient for the purposes of section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989.”
The advice from Brightsone Law and Titlesolv is to stay safe with a validly executed deed – this way the lender and their conveyancer are protected from any risk associated with the execution of mortgage deeds.
