Closing with a Power of Attorney
You have decided your Power of Attorney (“POA”) has the right formalities for the state of execution, the governing law state and the state where the property is located and the POA contains the powers necessary for your transaction. You also understand “Why?” it is appropriate to use a POA and the “Why?” passes the “Smell Test”, what then? What procedures should be followed in closing using a Power of Attorney?
- Record the Power of Attorney– If the exercise of the Power of Attorney involves the execution and delivery of a recordable instrument, the Power of Attorney must be recorded. Even if the Power of Attorney is otherwise perfect, a deed executed by the Attorney-in-Fact recorded without the underlying POA may be subject to challenge or deemed not to constitute constructive notice. For it to appear “within the chain of title” the POA should be recorded beforethe instrument executed using the POA is recorded.
- Clear it with your lender– Many lenders will not permit any use of Powers of Attorney on their mortgages, or impose special requirements if one is to be used. This is often spelled out either in general instructions or specific closing instructions from the new lender. Even if not addressed in the instructions, the better practice is to check with your lender as soon as you know a Power of Attorney is proposed and ask for specific written approval to use one in the transaction.
- How should they sign? How to prepare your documents?There are many ways documents are signed by an Attorney-in-Fact. Some can be a bit ambiguous; others can be viewed as a description of the person signing. “Alan Agent, Attorney” may just be describing that he is a member of the Bar, not indicating that the attorney intends this to be an act for a Principal under a Power of Attorney. Highly conservative title examiners have also rejected conveyances signed “Alan Agent as Attorney-in-Fact for Paul Principal.”
- When preparing documents, we have the luxury of avoiding these ambiguities. The document should be prepared to show the Principal as the party to the instrument. The signature line should show it being executed by “Paul Principal, by Alan Agent his Attorney-in-Fact.” Alan Agent should sign his own name on the signature line and the notary will show an acknowledgment by “Alan Agent, as Attorney-in-Fact for Paul Principal.”
- You will have to look at the statutes in all three states to determine the execution requirements where a POA appoints two or more Attorneys-in-Fact. Some laws require execution of documents by all of the named agents, where other states may allow only one. Other states may require a majority of the named agents.
- Additional affidavits– Anytime you are relying on a Power of Attorney, you need a special affidavit from the Attorney-in-Fact. The form of that affidavit will vary depending on the governing law, but will generally include statements along these lines:
- The Principal is alive and has not revoked the Power of Attorney or my authority to act under the Power of Attorney. The Power of Attorney and my authority to act under the Power of Attorney have not terminated.
- The Principal is not listed as “missing” or “missing in action” in connection with any hostilities in which the United States is then engaged.i
- There has been no initiation of proceedings to determine incapacity of or appointing of a guardian for the Principal, nor any adjudication of incapacity.ii
- If the Power of Attorney was drafted to become effective upon the happening of an event or contingency, the event or contingency has occurred.
- If I was named as a successor agent, the prior agent is no longer able or willing to serve. In which case, we want some documentation to that effect.
- Right to ask for opinions of counsel– From time to time you and your WFG underwriter may not be able to reach a comfort level in authorizing reliance on a given POA. In those cases, the Uniform Power of Attorney Act and some other state laws provide that the person being asked to accept the POA may, in writing and within seven days after the POA is presented, request an opinion of counsel as to any matter of law concerning the Power of Attorney. This may include the valid execution of the POA by the Principal, the legal competency of the Principal at the time of execution, the powers of the Attorney-in-Fact being sufficient for the transaction, the validity and satisfaction of all formalities of the POA under the laws of all three states (execution, governing law and property), the non-voidability as a result of any conflict of interest transactions and any other legal matters that might affect insurability relating to the POA. You may also request an English translation of the POA. Under the Uniform Act, these costs of the opinion and translation are to be paid by the Principal.
- A Power of Attorney doesn’t make you smarter– Being named in a Power of Attorney grants you authority, not knowledge. Being named in Albert Einstein’s POA, didn’t give his Agent any deep insights into the workings of the Universe. Nor does being named in anyone else’s POA give them any knowledge of whether they took out an unrecorded mortgage last month or had their roof repaired.
Traditional Closing Affidavits we use to allow us to insure over the Gap and remove standard exceptions can be problematic when a Power of Attorney is being used. To give the affidavit, the person giving it must have personal knowledge of the pertinent facts. Thus the Agent cannot swear to the knowledge of his Principal or a state of facts known only to the Principal.
The closing affidavit should NEVER be prepared in the name of the Principal for execution by the Attorney-in-Fact (and some software packages will do that automatically).
Often the holder of the Power of Attorney is a family member, a caregiver, or otherwise has personal knowledge of the relevant facts. If so, that person (whether they are the Attorney-in-Fact or not), in their individual capacity and based on their knowledge can give the affidavits we need for closing. Of course, you will have to change your normal affidavit form so that it is clear that the person giving the affidavit is not claiming to be the owner of the property and explaining the relationship and basis of their knowledge. It is not going to be your standard form.
Powers of Attorney are a powerful tool and a great convenience in sometransactions, but must be approached and utilized with great care. In the next part of this article, we will discuss dealing with the demand “You must accept this Power of Attorney – or Else.”
Alan B. Fields
SVP – Director of Underwriting Services
WFG National Title Insurance Company