Understanding Power of Attorney.

Protect your clients from risks of fraud and ensure that closings run smoothly.

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Understanding Power of Attorney ...


Have you considered what to take into account when working with a Power of Attorney? Protect your clients from risks of fraud and ensure that closings run smoothly and on schedule by taking the time to understand POAs. Read on as Vice President & Underwriting Counsel David Gordon covers these points and more below!

DAVID GORDON: Let's start with the basic question of what is a power of attorney.David Gorden Headshot

A power of attorney is a legal document giving one person the power to act for another person. It can give broad authority or limited authority regarding property, finances, or medical care. It is used when someone is unable to be physically present for a transaction or a decision and must send a surrogate in their place.

Who are the parties to a power of attorney? The person giving the power of attorney is called the principal. They will execute the power. The person that is receiving the power is called the attorney-in-fact. They sign the documents on behalf of the principal. The attorney-in-fact is considered to be in a fiduciary position to the principal.

Now that we know what a power of attorney is and who the players are, the next question is, why are you title insurance underwriters so freaked out every time one is presented? The number one reason there are concerns with powers of attorney is fraud. The person signing a document is not physically present, so we cannot assess the identity or their capacity.

Powers of attorney are often used in instances of elder abuse. If the principal does not understand what they are signing and is subjected to undue influence, then the power may not be valid. But that determination cannot be made because the principal is not present. If the attorney-in-fact completes the transaction using a fraudulent power, then they may strip a property of all of its value.

The next question is, how can we reduce the risks associated with powers of attorney? The best way is to follow all of the requirements and formalities for a valid power. All powers of attorney have some common requirements.

  • Proper Execution

Make sure the document is executed in front of a witness and a notary. Also, stay in control of the execution as much as possible. Don't hesitate to contact the notary who will be notarizing the document to arrange for its execution.

  • Powers

Number two, powers. The document should specify what powers are being granted to the attorney-in-fact. If a seller signed the power, then the power to sell and convey the property along with the power to sign the necessary documents should be included.

  • Alive

Number three, alive. Powers of attorney expire at the death of the principal. So we have to verify that the principal is alive at the time of the closing.

  • Recorded

Number four, recorded. The power must be recorded either on its own or as an exhibit to the document the attorney-in-fact is signing. In the event it is recorded as an exhibit, then the original document should still be presented at closing for inspection. An unrecorded power in the chain of title can create a cloud on title since there is no way to know if the attorney-in-fact was truly granted the necessary authority.

Beyond those basic requirements to create a valid power of attorney, there is an additional requirement so that we can rely on the document to write title insurance. It must be specific to the property and the transaction. It must reference the property by its legal description and maybe also by its address. It must also specifically authorize a transaction at hand, whether it is a sale, a purchase, or a loan transaction.


If we are not presented with the gold standard specific power of attorney, what questions do we ask to determine if we can rely on the general power that we've been presented with?


1. What is the age of the power? The older it is, the less likely we would be to rely on it. However, if it is a very recent power and we are being told that the principal is not competent, it makes us wonder if they were competent at the time that the power was signed.

2. Does the signature look suspicious? Compare it to the other signatures of the principal in the chain of title or on the contract. How do they compare? Are they similar?

3. How much are the proceeds from a sale or from a cash-out refinance? One golden rule of fraud is that you have to follow the money. If no one stands to benefit from the transaction, then there probably is not fraud. People do not commit fraud for the privilege of bringing money to the closing table.

4. Who stands to benefit? Take a hard look at whoever is walking away with the money. For example, if it is one child of the principal handling the transaction and all the other siblings are being excluded, that may raise a red flag.

5. And finally, number five, what is our familiarity with the parties? If there's a relationship with the parties and we have background knowledge about them, we may know that they are less likely to engage in fraud.

Recently, a new statutory power of attorney was created by the legislature, and we are often asked to accept that form rather than the specific power that we have requested. We do not rely on the statutory form since it is not a specific power of attorney.

Sometimes parties will claim title insurers are required to accept the statutory form under the new law. But there are two reasons why we are not required to accept it. First of all, under OCGA 10-6B-20, title insurers are not a party to the transaction, and so, therefore, any statement in the law that requires a statutory form to be accepted does not apply to a title insurer. And number two, under OCGA 10-6B-3, the statutory form does not apply to a single transaction powers of attorney, which is what we are requesting.

Now a quick word on military powers of attorney. They are treated slightly differently than normal ones when it comes to their execution. There are a number of additional military personnel who can act as the official notarizing witness on a military power.

And finally, a couple of quick tips when dealing with powers of attorney. Number one, review the power to make sure there is no trigger required to make the power effective. A common example is that the power becomes effective upon the incapacity of the principal. Often, a doctor's letter is required to determine incapacity. Until that trigger occurs, the attorney-in-fact has no authority to act.

And number two, attorneys-in-fact typically cannot self-deal. Unless a power of attorney specifically allows them to convey the principal's property to themselves, then that is not allowed. Similarly, a sale to a related party of the attorney-in-fact will typically not be permitted.

Well, now that you know more than you ever wanted to know about powers of attorney. We are here for you if you have any questions. Contact an underwriter at 404-303-6300 or by emailing us at gaunderwriter@cticga.com.


If we missed seeing you at our May 11, 2021 UThrive CLE event, it's not too late for you to get your Professionalism and Ethics CLE credit hours! Register now to gain access to the recording. 

Uthrive May 11 Professionalism and Ethics CLE Register

 

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