Powers of Attorney and Real Estate

Powers of Attorney and Real Estate

Powers of Attorney can be both a huge risk as well as a tremendous tool in real estate. Here's the big question: When is the use of a Power of Attorney appropriate and when it is not?

We realtors can not simply accept a client's assurance that they have the authority to sign on behalf of another person. We need to see Power of Attorney. The Power of Attorney will then be reviewed as to its validity and intended use for the transaction and a photocopy taken for the office file.  Please note that originals will be required by Land Titles later. All Power of Attorney's must be signed while the person granting it has sufficient mental capacity to understand it. If the person granting the document is incompetent, then it will be invalid.  Realtors themselves should never agree to become attorney's on behalf of their clients as this may be a conflict of interest.  Another big red flag would be if the chosen attourney suddenly chooses to buy the property himself.

The following are the most common types of Powers of Attorney used in real estate and can be differentiated according to the heading of the document in most cases:

1.    General Power of Attorney which allows the designated individual (Attorney) to execute almost anything on behalf of the person who granted it (grantor). It will automatically terminate upon the loss of capacity or death of the grantor.

2.    Special Power of Attorney used only in a specific purpose (such as the sale of one's home) and cannot be used for anything else. As with the General Power of Attorney, it terminates upon the loss of the grantor's capacity or death.

3.    Enduring Power of Attorney is intended to survive (and continue to be used by the Attorney) after the loss of capacity on the part of the grantor.   It will, however, also terminate immediately upon the death of the grantor. Enduring Powers of Attorney can further be divided into two distinct types:

a.    One type is effective immediately upon its execution and continues to be valid subsequent to the loss of the grantor's mental capacity; and

b.    the other is dormant and only "springs" to life when the grantor loses mental capacity, which is usually required to be evidenced by either one or two letters from independent doctors.

The Enduring Powers of Attorney must have Independent Legal Advice Certificates signed by a lawyer attached to them.  If it is dormant then a doctor's letter will have to be provided to you before you can rely on it.

Unfortunately, Powers of Attorney have been used by individuals committing mortgage fraud and identity theft. As a result, a bank's consent must be secured before relying on a Power of Attorney for the closing of a purchase involving mortgage financing.

Powers of Attorney can be extremely useful tools in some circumstances. If, for example, a seller who works out of town and is difficult to contact when an offer comes in on the listed home may want to execulte a Power of Attorney allowing a spouse to sign on behalf of the seller.

On the opposite side of the spectrum and invalid Power of Attorney could wind up crashing a deal potentially resulting in legal issues later.  This is of course the tip of the iceberg when it comes to Power of Attorney.  I would strongly suggest that any industry member consult their broker or a lawyer with questions that arrise.