Power of Attorney pitfalls
[Editor's note: Fannie Mae recently issued new restrictions on use of Power of Attorney. Please read this article and contact our office with any questions.]
If you must use Power of Attorney, please contact our office.
In my 18 years as a settlement attorney, I can point to an improper Power of Attorney (POA) form as one of the most common causes of a delayed closing.
You have no doubt encountered clients who are too busy or physically unable to make it to closing. You’ve heard "My mom gave me Power of Attorney," "I gave my husband Power of Attorney," "Grandma is in the nursing home – I have Power of Attorney."
Simple enough – right? Wrong.
So often, clients find POA documents online or stationary stores. We are frequently presented with general "checklist" POA forms and clients are dismayed to learn that we cannot accept them for the purpose of insuring title.
When it comes to conveying or encumbering real property by Power of Attorney, make sure your client has the proper legal authority well before the closing date. Many states specifically address, by statute, the use of Power of Attorney and impose very specific requirements.
Title insurance underwriters go beyond the state’s statutory requirements with even stricter guidelines for Power of Attorney usage. I think it’s helpful to first understand the definition of an "attorney."
A person legally appointed by another to act as his or her agent in the transaction.
It’s also important to understand the two specific parties in the Power of Attorney.
1. The PRINCIPAL is the person granting another the power to act in their stead; the one who signs the POA document.
2. The ATTORNEY-IN-FACT is the receiver of the power from the Principal.
In order to satisfy most title insurers, a POA form to be used for the purpose of conveying or encumbering real property must meet the following requirements:
The document needs to have been executed by the Principal within a year of the transaction at which it is being used. While exceptions are made on a case-by-case basis, it is rare that a title insurance underwriter will accept an aging POA because of risk of fraud or marketability issues.
The document must grant the Attorney-in-Fact the powers required to effect the transaction and should recite the specifics of that transaction (i.e., property address, convey or encumber). A document giving the Attorney-in-Fact the ability to “handle real estate transactions” is too vague and too general.
The document must state that the Power of Attorney will not terminate upon the disability of the Principal. It is not acceptable for the document to be entitled “Durable Power of Attorney” and not recite the above durability language specifically with the text.
The document must be an original. A copy of the POA is not acceptable. The POA must be recorded with the clerk’s office and the clerk requires original documents to be recorded. To be absolutely certain that your client’s Power of Attorney is acceptable, please forward to our office for review prior to closing. If you would like to have sample POA forms recommended by our office, please feel free to contact us and we will gladly provide those forms.
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