Determining who has authority to sign closing documents for a real property transaction, whether for a sale or refinance, is one of the most critical aspects of title work – but it also presents some challenges. Signing parties can include individuals or entities, such as corporations, limited liability companies, general and limited partnerships, religious entities, unincorporated associations and more. In determining a person’s capacity to sign, title professionals may encounter the use of a power of attorney or court orders involving conservatorship, guardianship and the probate of estates.
Here are some general principles and precautions to keep in mind when determining who has the authority to sign closing documents.
An entity, such as a corporation, is a legal form under which property is owned. An entity can both purchase and sell real property, as well as make loans, borrow, lease, encumber or obligate the entity, depending on the entity’s authoritative documents. Here are some universal considerations when dealing with most entities:
A living family trust is not a legal entity capable of acquiring, borrowing, conveying or otherwise dealing with title to real property in its own name. Title to real property that is a trust asset must be vested in the name of the trustee or trustees of the trust. This is the general rule for typical family inter vivos trusts. This rule does not necessarily apply to some business, real estate or land trusts, which can hold and convey title in the name of the trust.
The trustee is the general agent for the trust property. The exercise of a power by the trustee is subject to the trustee’s fiduciary duties. The trustee’s authority is limited to the authority conferred by the powers specified in the trust instrument. The trustee may exercise powers expressed in the trust instrument or by statute without court authorization. The trustee has a duty to avoid conflicts of interest. A trustee acts within the scope of his authority to bind the trust property to the same extent as an agent acts to bind his principal (similar to a power of attorney).
Partnerships can be general or limited. A general partnership is an association of two or more persons to carry on as co-owners of a business for profit. A person includes individuals, other partnerships, corporations and other associations. A partnership is only an association of individuals. It is not a natural person nor is it an artificial person. As an unincorporated association, it has no identity separate and apart from the members comprising it. Given these conditions, a partnership should not be able to deed or hold title. To accommodate this problem, partnerships, as business organizations, have been given rights by statute to allow the holding of title in the name of a partnership, allowing a partnership to sue or be sued in its name and may be adjudged bankrupt separate from its members.
Generally, the activities among and between the partners are governed by the partnership agreement. The agreement may also establish the duration or lifespan for a fixed or indefinite time. A premature termination could occur by the death, withdrawal, or resignation of a partner. These are things to watch out for. For title insurance purposes, no reliance is placed upon the implied authority of a partner acting for the partnership without confirming that the partner is acting within the partnership agreement. As a rule, where the partnership agreement is not available, require all general partners to act (or sign) on behalf of the partnership.
Limited partners in a limited partnership are primarily investors without the powers of management or control. They are entitled to remain anonymous. A limited partnership is managed and conducted not only by the general partners, but by all the general partners. Do not rely on documentation or instructions where less than all general partners have signed unless all the general partners have authorized such reliance.
DBA is a fictitious business name. It is the public name of an entity or individual behind it. For example, “Joe’s Tacos” could be a business name behind which a large corporation, or an individual, not necessarily named, “Joe,” does business. If you cannot locate a business name in a corporate registry, it may be just a DBA. This can be confusing when the DBA includes the word “company.” DBAs are usually registered in the locality where they do business, where the actual entity or individual can be identified. In this case, the individual or entity behind the DBA would be the signing party.
A conservatorship (and in some states, a guardianship) involves the court appointment of a conservator or guardian to manage the affairs of an adult who is deemed unable to provide for their own personal needs, physical health, food, shelter and/or financial needs. For title insurance purposes, the appointment of a conservator/guardian is a judicial determination of the incapacity of the conservatee to enter any transaction involving property of the estate. Interpretation of court orders involving such transactions should be referred to underwriting counsel for review. A guardian in some states is appointed by a court to administer the estate of a minor. A guardian’s authority over property of the estate of a minor is subject to court order and should be referred to underwriting counsel. Generally, no mortgage or sale of real property that is the subject of a guardianship or conservatorship should be permitted to proceed without an order from the court approving the terms and conditions of sale. It is also important to understand where proceeds may be disbursed when dealing with a conservator or guardian.
In states that have adopted the Uniform Transfers to Minors Act, real and personal property may be transferred to a custodian for the benefit of a minor. A custodian, acting in a custodial capacity, has all the rights, powers, and authority over custodial property that adult owners have over their property, but such rights, powers and authority can be exercised only as a fiduciary. There are limitations on the amount of such transfers under the act, and parents may not be able to handle all such transactions. In such cases, a separate guardian or conservator may need to be appointed by a court.
An executor or an administrator guide a decedent’s estate through the probate process. The executor is usually named in the will of a decedent. An administrator is usually appointed by a court where there is no will appointing an executor. They each follow the process of payment of debts and distribution of decedent’s assets per court order.
This is but a sampling of the considerations title agents must confront when determining who can sign in real property transactions. Some of the difficulties often encountered are obtaining necessary documentation to establish and confirm signing authority. This is among the many challenges title and escrow professionals face when closing a real estate transaction. Remember, when in doubt, your Doma underwriting counsel are available to assist.
“The most important part of this rapid response plan is the word rapid,” Schreiber said. “You have a limited window to recover the funds. Fraudsters are not going to leave the funds in the bank where you wired them to, which makes recovery all the more difficult. In most instances, the money is unrecoverable within a matter of hours, or at most, two or three days.”
Gytis Nefas is Vice President, Senior Underwriting Counsel for Doma Title Insurance, Inc.