What is a Power of Attorney?
A Power of Attorney is a written document authorizing one individual, referred to as the Attorney in Fact to act on behalf of another regarding legal matters like signing a contract, deed or other instruments. The signature of the Attorney in Fact is binding on the part of the individual that conveyed the POA. There are different forms of POA’s, they can be general and all inclusive or specific for a single transaction. They must be notarized to be binding.
In theory, when an Attorney in Fact signs on behalf of another it is the same as if the individual signed for them self. Obviously a POA is a very unique document and requires attention to detail not only in content but in form as well because the agreement signed using one is binding on the party that is not signing on their own behalf. If a mistake is made it could be a binding error.
When to Use a POA
You should not use a POA unless absolutely necessary. If a contract or document is important enough to require a signature it should be signed by the individual that is bound by the terms of the agreement. There are times when this is not possible, that is when one should be used. For example, an individual that is in the military and is stationed overseas would not be able to attend a real estate closing back home, a POA would be required if the closing is to proceed.
Other examples of when a POA is appropriate would be for an individual that is senile or incapacitated by illness or injury to the point they are not able to conduct their affairs. In events like these it may be necessary to obtain a court order appointing a relative Attorney in Fact or some other legal capacity. Another example, in the event of relocation where one spouse moves in advance while the other remains behind to complete the sale of their home. There are many circumstances when using a POA is appropriate.
When Not to Use a POA
A power of Attorney should only be used if you can absolutely not be present for signing the agreement. I am not an expert in legal matters, only those regarding the real estate mortgage process. In the past year I have had more buyers and sellers inquire about using a POA than in the previous 20 years combined. This is very strange.
In every case this year the request to not attend a closing was not because of distance but simply because they individual did not want to attend the closing. It doesn’t matter what you would rather do, nothing is more important financially than a real estate closing. Think about it, if you earn $20 an hour compared to buying or selling a $150,000 house, which is more important? Take a long lunch hour or use a sick day and attend in person.
One lady that was selling a home told me she just didn’t want to be in the same room as the buyers. Okay, I can understand that, but there are other ways to accomplish non-contact. Recently I had a buyer in one room the sellers in another room and the Realtors wanted a little privacy for a chat so we put them in yet another room. That was a first for me. I have put many divorcing couples in separate rooms but never used three rooms until then.
Using a POA for Real Estate is NOT Automatic
Lenders do not want the buyer or seller to use a POA. Especially when it comes to the buyer signing the note and mortgage, most lenders want an original signature of the person that is borrowing the money. Do not assume that you can use a POA as a buyer or seller. This is something that should be reviewed and approved long before arriving at the closing.
The actual POA document should be reviewed in advance by the closing attorney or Title Company that is going to officiate the closing. In addition to this step it should also be pre-approved by the lender long before setting a closing date. Power of Attorneys are custom documents, no two are exactly alike. There are different types, some are general in nature while others are specifically designed for a single transaction. A POA for a real estate transaction should be very specific, spelling out who, what, when, where and how.
Obviously, if an attorney is acting on behalf of a title company they will be very picky about the content of a POA.
Who Can Act as Your Attorney in Fact?
The best individual to act as your Attorney in Fact would be your spouse. Next would be a very close blood relative, a parent or sibling. Anyone you appoint that agrees to accept the responsibility is allowed as long as they do not have a financial interest in the transaction. For example, a seller should not act on behalf of the buyer regardless of the relationship.
What about your Realtor? This is another bad choice because they are receiving a commission from the sale. It happens, but it is not a good choice and may not be allowed by the lender or closing attorney.
How about a friend or co-worker? These are not as good as a close relative but are better than the Realtor. Keep in mind if something goes wrong you are stuck with the consequences. Is that really something you want to put on the shoulders of a close friend?
Helpful Hints for Using a POA
If you must use a POA have it prepared by the attorney that will close the deal. This would eliminate the document being rejected by the closing attorney over form or format. If this is not possible have it prepared and signed well in advance and provide the closing attorney a copy as early as possible, do not wait until the day of closing!
If it is not possible to attend the closing the documents may be sent overnight to the absent party, they can sign in front of a notary and returned to the closing attorney.
I hope this information is helpful. If you have questions just give me a call, my direct line is (502) 753-4127. If you found this information interesting please share it with others.