Your customer’s loan was just approved for a refinance, but they must leave town for a family emergency. The loan lock will expire before their expected return date – what do you do? One of your office’s best customers brought in a big sales contract that needs to close quickly, but one of the parties is out of the country on business – is there an easy solution?
More than likely, a power of attorney will be suggested and used in these transactions. While powers of attorney have become quite commonplace in today’s real estate transactions, closing personnel should be wary as the use of powers of attorneys have become an increasing source of fraud, including elder abuse. To protect our companies while continuing to service the needs of our customers, we need to be knowledgeable in the law surrounding powers of attorney in our state, learn how to use powers of attorney properly and become familiar with standard underwriting requirements.
A power of attorney is a written document in which a person, the principal, authorizes another person(s), the attorney in fact or agent, to perform certain actions or types of actions on their behalf.
Powers of attorney may be general or specific, be durable in nature or expire upon the incapacity of the principal or have one or more persons appointed to act on behalf of the principal.
Therefore, it is crucial to scrutinize each power of attorney so that the appropriate underwriting requirements can be made.
When reviewing a power of attorney, you need to determine what types of powers are being conferred by the principal. General or universal powers of attorney usually confer a wide variety of specific acts, while special or specific powers of attorney confer limited or restricted acts on behalf of the principal. In some states, it is either required or generally preferred that a power of attorney be specific or limited to the specific real estate transaction. Whether a general or specific power of attorney is presented for use, title agents must make sure the specific acts necessary for their transaction – buying or selling real estate, executing deeds, mortgages or deeds of trust, participating in banking transactions, etc. – are conferred by the principal to their attorney-in-fact.
Another important aspect to look for in a power of attorney is whether it is durable. Durability in a power of attorney is described with words such as “this power of attorney is not affected by subsequent disability or incapacity of the principal” or similar language. If the power of attorney is durable, then the capacity of the principal at present is not an issue, but you must determine whether or not the principal was competent at the time they executed the power of attorney. If you are unable to ratify the power of attorney with the principal either during or immediately prior to the closing of the real estate transaction due to competency issues, a physician’s statement will most likely be required. The physician’s statement must attest that, to the best of the physician’s knowledge, the principal was competent during the time period of the signing of the power of attorney.
If the power of attorney is not durable or contains language specifically stating that the power of attorney is not viable if the principal is incapacitated, the title agent must undertake an investigation to make sure the principal is competent during the period of time the real estate transaction is to be consummated. If difficulties arise while trying to make this determination, underwriting counsel should be consulted.
While it is not uncommon to be asked to use a power of attorney that appoints a successor attorney-in-fact if the original appointee cannot act, it is less common to be given a power of attorney that appoints joint attorneys-in-fact where two or more persons are named to act. The question then becomes whether the appointed attorneys-in-fact must act together in executing the necessary documents or if one individual appointee may act on their own. When this occurs, the title agent must thoroughly examine the verbiage used in the power of attorney to determine the principal’s intent.
Remember that the original power of attorney will need to be recorded, so the acknowledgment of the principal’s signature will need to be examined. Usually, the acknowledgment will be local or within the United States, but occasionally title agents will receive a power of attorney that has been executed in a foreign country. Like all documents executed in a foreign country, execution must have been at the U.S. Embassy, U.S. Consulate or with an apostille or other form of acknowledgment that is in English or has been translated and is acceptable in the state where the property is located.
Another resource that is now available is remote online notaries (RONs). However, RONs are not available everywhere as the availability of these notaries is determined by state statute. Title underwriters have specific guidelines regarding the use of RONs for the execution of any document, so questions in this area should be directed to underwriting counsel.
There are times when the power of attorney document itself meets underwriting guidelines but the circumstances in which it is being used are either questionable or uninsurable. The following are instances in which the use of a power of attorney should be thoroughly investigated before being used in a real estate transaction being insured:
This list is not meant to be exhaustive, but it includes the most common instances. Title agents must be cautious to not only examine the power of attorney thoroughly but be mindful of the transaction in which it is being used.
When a general or universal power of attorney is over two years old, title agents should check the facts of the transaction and confirm that the power of attorney is still valid. The best safeguard is to always ratify each power of attorney by speaking to the principal either during or immediately before the closing. This conversation with the principal should review transaction details and verify that the power of attorney has not been revoked. This ratification conversation with the principal should be detailed in writing and kept in the title file.
A discussion of powers of attorney is not complete without the inclusion of the powers of attorney used by our military personnel and federal employees being deployed into a location where assistance from non-military legal personnel is not available. So-called military powers of attorney are established by federal law and may be used as a durable power of attorney, even though the form may not be identical to a statutory or commonly used form in your state. These powers of attorney may be acknowledged by judge advocates, civilian attorneys serving as legal assistance attorneys and others designated by the Secretary of State.
In conclusion, although many states have either statutory or preferred forms for powers of attorney, title agents will receive a variety of different forms for use in a real estate transaction. While most power of attorney situations can be easily handled, if questions arise or for any reason the transaction seems uncomfortable, NATIC agents can contact NATIC underwriting counsel for further review and discussion.
Ginny Abiassi is NATIC’s Vice President and Senior Underwriting Counsel.
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