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Power of Attorney: Should You or Shouldn't You?

I'm up early this morning previewing the slide display that will be used by an attorney that I'm giving a presentation with next week. More specifically, my co-presenter is a claims attorney for a national underwriter. Her PowerPoint presentation is possibly the best that I've seen and the information shared is invaluable.

There's one point from this claims attorney's presentation that I want to share with everyone at Active Rain: Powers of attorney are abused often and the abuse creates enormous problems for the real estate industry each year.

Definition: A power of attorney is a legal document by which a person (the grantor) authorizes another (the attorney-in-fact) to make decisions or contract for the grantor.

Facts:

Many title claims, and much litigation, wouldn't exist were it not for the casual approach taken by some towards the use of a power of attorney.

Power of attorneys are frequently used (abused) by fraudsters to commit real estate and mortgage fraud.

Some tips to stay out of trouble:

Real estate agents should NEVER agree to act as the attorney-in-fact for a buyer or seller. NEVER!
Ask why a power of attorney is being used. A power of attorney presents many unnecessary risk factors. Its use is not intended for the sake of convenience.
Personal representatives, trustees, and guardians cannot delegate powers through the use of a power of attorney. REO transactions are an exception to this rule. Foreclosed properties are often vested in trusts and later conveyed by trustees using a power of attorney. An agreement allowing this to happen was reached between the lending and title communities years ago.
A power of attorney should be as transaction specific as possible. Involve the lender as soon as you learn that a borrower will be unable to attend closing. Most lender's have guidelines determining the information that's required in a borrower's power of attorney.
Whenever possible, avoid the use of a power of attorney by forwarding closing documents for signatures. Keep in mind: All military installations and foreign embassy's have the ability to legally notarize documents.
Your buyer or seller will need to provide the original and notarized power of attorney at closing. A court certified copy will work if the document has been properly recorded in another county or state. Talk to the title company.
All power of attorneys become invalid when the grantor dies. State probate rules become applicable at that time.
State laws determine if a power of attorney is effective (durable) should the grantor become mentally incapacitated. It varies.
Always obtain the address and phone number of the grantor named in the power of attorney. Call that person to introduce yourself and discuss the transaction. Make arrangement for the grantor to review and sign the settlement sheet by fax before funds are disclosed. Don't ever make assumptions or take chances with funds belonging to someone else ... even when a power of attorney is being used ... Especially when a power of attorney is being used!

A power of attorney is the weakest link in any real estate transaction. It should be used only when absolutely necessary.

Why take chances?

Posted by Ed Rybczynski on 04/22/2007 06:15 AM

Comments (23)

power of attorney

23 Comments on Power of Attorney: Should You or Shouldn't You?

APR

2007

I was asked to be a power of attorney for a seller once and I almost shreiked when asked. No thank you!

Chris

It's a good point. The casual use of POA's account for incredible amount of dollar losses each year. Title claims would be reduced big time if POA's were taken more seriously. Thank you for commenting.

Very good points. I am sure a majority of people do not do the research before authorizing the Power of Attorney. Chris makes a great point.

Chris definitely makes a great point. I appreciate your comments.

Point: Shreik and run!

Good Stuff - Thanks for sharing. Too often I've seen transactions use POAs because it's an inconvenience for one of the parties to attend closing. Many times it's because of our work. I think when you buy or sell a home, you should have a day off, period. There is family leave, paid holidays and sick days. Let's get a home buying/selling day and get everyone to closing.

Ed, that is all good advice. Perhaps you could mention the role of the notary, and what they can do to prevent power of attorney abuse. There is much. Sometimes simply refusing to notarize a power of attorney if it appears that the person granting it is doing so under duress. Or insisting on seeing the original power of attorney document at closing. Many closings are handled by notary signing agents. It's not enough for the attorney-in-fact to say, 'I have power of attorney.' Thanks.

Michelle

Excellent comments, the casual use of a POA for convenience sake can prove a very costly mistake. I'm with you, closing is a big deal and everyone should attend. Thank you.

Ed, you are absolutely right on this point. Why would any real estate agent put themselves in this position unless it is a close family member. I had a real estate agent try to pass a document off as a power of attorney at the closing. I kept insisting on seeing the so-called power of attorney before I would let my client hand over the check. The real estate agent slid it under a pile of papers the closing officer had in front of her. When the closing officer handed me the document, it wasn't even close to being a legal power of attorney -- the closing officer held up the closing until the actual notarized power of attorney arrived!

Leon

You're points are well taken. I almost dealt with the role of the notary in this post, but decided to save it for a separate article. I appreciate your insight. You're so right about the element of duress and the last minute "I have power of attorney" attitude. Both are ultimately detrimental to the entire industry.

Joan

Thanks for sharing that story. I've heard numerous stories about POA's holding up closing because they were drafted incorrectly and presented at the last minute. I've also heard of title people and real estate agents being involved in expensive litigation because of POA's. It's something that shouldn't be taken for granted and totally within our control.

Ed,

As a broker I am frequently asked to sign via POA for clients. I have a rule about never accepting that responsibility. I just tell them I prefer to have more than ONE SET OF EYES reviewing the closing docs. My clients usually appreciate that and look for someone else to assist.

Kristal

As always, your words portray a wisdom beyond your years. It's a great point that you bring up. Placing the onus on the "empty chair" is a legitimate and diplomatic way to sidestep a difficult situation while limiting personal liability. I'm preparing to leave for Michigan to work with title agents and will make a note to discuss this very topic. Thank you.

What a great post. I have seen do many problems arise from agents trying to be "helpful" and signing a POA...its a recipe for disaster! Do you mind if I email your post to our manager group for sales meeting? Thanks for a great post

Beth

I would be flattered if you shared this post with your manager group. Please don't hesitate to contact me. I deal with similar topics every day. A "recipe for disaster" is such an appropriate statement. Thank you.

Ed, I did not know some of things about Power of Attorney, so thanks for sharing this, and the advice that you are giving here seems like good advice to me.

APR

2007

George

Thank you. A lot of abuse and losses occur each year because of the POA. I'm surprised that it's tolerated by money sources within the RE industry.

APR

2007

Thanks for this information. While it is not an uncommon practice in the State of North Carolina, where attorneys do the closings, we still caution our brokers in this regard.

janeAnne

You're very welcome. I think that a lot of real estate insiders would be shocked to know the sheer number of losses to title insurers caused each year by POA abuse or complacency.

APR

2007

Due to a tremendous amount of military in Hawaii...and deploying to Iraq and Afghanistan we have a bunch of military who start looking and then get deployed. Or they are in the process of selling and get deployed. The POA is actually a good thing for those reasons.

Sally

I completely agree with you in that case. The POA is a valuable tool to be treated with care.

JAN

2008

Ed: I just e-mailed your post to my daughter. We just got an offer on a property with an attorney in fact signature. Pretty interesting.

JAN

2008

Hi Jan

Please let me know how you make out with the offer signed by an attorney in fact. As you can tell, I'm not a fan of delegating legal rights to the discretion of others.

As an aside, I had the great privilege to recently visit Nashville for the very first time. What a great place!

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