Powers of Attorney: A Potential For Fraud

Written by Posted On Tuesday, 27 August 2013 17:00

You are about to settle on your new home but find you have to be out of town on the day of closing. What can you do?

First, you can try to postpone the settlement. But that may not be acceptable to the seller, and your lender may tell you that your loan lock cannot be extended.

Next, you can ask the settlement attorney to provide you with all of the papers that are necessary, and you can sign them in advance. Unfortunately, all too often, the documents needed for settlement are not available until sometimes moments before the actual settlement time - and sometimes even afterwards.

So, your title attorney tells you to give someone a document called a "power of attorney". What exactly is that? Black's Law Dictionary - the bible for most law students - defines it as "an instrument authorizing another to act as one's agent or attorney". It is also referred to as a "letter of attorney".

There are many different kinds of powers, such as general, specific, or durable. Every homeowner should have separate durable powers of attorney for health and financial matters. However, this column will only address the power involved with real estate transactions.

You are the principal. You authorize someone to act on your behalf and sign all necessary documents as if you personally were present. That person is your "attorney in fact".

Powers of attorney are authorized by state (or District) law, and you have to use the correct form. It will not be acceptable just to sign a paper saying "I hereby authorize Jane to represent me at settlement".

Let's look at the various state laws.

Every state in the union allows real estate transactions to be conducted using the proper form of power of attorney. The District was the last jurisdiction in the country to allow such powers. There was concern that elder people -not understanding what the document was - would give away their home by signing such a power of attorney. Accordingly, back in 1994, over the objection of many people (including for the record this columnist), the Council for the District authorized powers of attorney but required the following language to be included - in bold and in caps - at the top of the document:

THIS POWER OF ATTORNEY AUTHORIZES THE PERSON NAMED BELOW AS MY ATTORNEY-IN-FACT TO DO ONE OR MORE OF THE FOLLOWING: TO SELL, PURCHASE, LEASE, GRANT, ENCUMBER, RELEASE OR OTHERWISE CONVEY ANY INTEREST IN MY REAL PROPERTY AND TO EXECUTE DEEDS AND ALL OTHER INSTRUMENTS ON MY BEHALF, UNLESS THIS POWER OF ATTORNEY IS OTHERWISE LIMITED HEREIN TO SPECIFIC REAL PROPERTY.

This document must be signed by the principal and notarized. The title attorney must have the original, and it will be recorded among the land records immediately before the legal documents which have been signed by the attorney in fact.

In Maryland, as of 2010, you have to use a fairly lenghty form and check off what your attorney in fact can - and cannot - do. And the form also provides advice and guidance for the agent. "When you accept the authority granted under this power of attorney, a special legal relationship is created between you and the princpal. This relationship imposed on you legal duties that continue until you resign or the power of attorney is terminated or revoked." The instructions further make it clear that the agent must "act with care, competence, and diligence", and "do nothing beyond the authority granted in this power of attorney".

Once again, this document must be recorded among the land records in Maryland where the property is located.

Virginia has enacted the Uniform Power of Attorney Act, and there is no specific form required. There is, however, a form entitled "Agent's Certification", which the attorney in fact can sign to confirm that the principal is still alive and has not revoked the power. This is optional, but many title attorneys - to protect themselves as well as the principal - require that this be signed by the attorney-in-fact.

There are cases where the attorney-in-fact has used the power to take property for his or her own use. Back in the l980's, a family owned several properties in the District of Columbia. One of the family members - a young man - convinced his grandfather to sign a power of attorney over to him. The grandfather was in the hospital at the time recuperating from an operation.

The young man then arranged to convey his grandfather's interest in all properties to himself. He then approached his grandmother, requesting that she sign a power of attorney, but the grandmother refused. The young man then proceeded to kill his grandmother and ultimately went to jail.

Powers of attorney are fraught with problems. Title attorneys and title insurance companies are reluctant to accept them, and will insist on making sure that the proper form and correct language is included in the document. You should not use the forms that can be obtained free of charge (or even for a fee) on the internet. If you need to provide a power of attorney for your real estate transaction, get the proper form from the settlement attorney that will be handling the closing.

Make sure you know who your attorney-in-fact is, and that you trust him or her. Make sure you carefully read the document before you sign, and if you don't understand certain terms, ask your own attorney for an explanation. If your attorney-in-fact will have the authority to sign all settlement documents only for a specific piece of property, make sure this is spelled out very clearly in the document. And if you do not want your agent to have access to any moneys, put that limitation directly in the document you sign.

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

kasslegalgroup.com

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