Years ago, powers of attorney were commonly used in real estate transactions when an individual was incapacitated or a spouse was in the military. Now, it is not uncommon for an individual to go on vacation and appoint their friend to look after what is probably their biggest financial asset. As title insurers, we are noticing a frequent use of powers of attorney in real estate transactions. This warrants closer scrutiny. Why, you ask?

Powers of attorney, as you know, are very powerful documents which can be easily downloaded from the internet and forged by individuals claiming to be registered property owners. Further, powers of attorney are often abused by donors who may be in financial difficulty.

So how do you protect your clients as well as yourself?

Here are some things to consider when a power of attorney is being used in a real estate transaction:

  1. If you did not prepare the document, question who did and the purpose for which it is being used. Where is the donor and can you contact him/her to get instructions directly?
  2. Examine the document closely. Are there restrictions? Has it been executed and witnessed properly? Is the attorney using the power in the appropriate way?
  3. Are you examining an original or certified true copy of the document to ensure it has not been altered?
  4. If the registered owner is a corporate owner, was the power of attorney given by the corporation or an officer? An officer cannot delegate the duties of a corporation by way of power of attorney. It must be given by the corporation.
  5. Are the decisions being made solely for the benefit of the donor or is the attorney or another individual benefitting? If the donor is not benefitting, could the use be construed as a breach of fiduciary duty?

When using a power of attorney in a mortgage transaction, ensure that the lender will allow its use. Given the risk of fraudulent powers of attorney and challenges to mortgages as a result of breach of fiduciary duties, it is important to disclose this when requesting title insurance. It may help you avoid delays in closing your transaction if the power of attorney, or circumstances for which it is being used, do not meet your title insurer’s requirements.

Originally published at FCT

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