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 Dealing with a Power of Attorney

by | Oct 13, 2023 | Disclosures, Environmental Hazards, Ethics, Uncategorized

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

 

 Recently, we have received a number of inquiries regarding handling powers of attorney (“POA”). The following is a discussion of issues to consider when a party to a transaction presents a power of attorney.

 

SCENARIO NO. 1:  I am listing a home. The seller appears to have dementia and seems to be disoriented during many of our meetings.  I called her son to discuss my observations.  He has obtained a power of attorney to act on her behalf. Is it acceptable to move forward with the son pursuant to the power of attorney?

 

RESPONSE:  You may not move forward with the son pursuant to the power of attorney unless the power of attorney was executed before the seller became mentally incapacitated. A power of attorney is only valid if the person signing it has the mental capacity to execute it.  Even in that case, once the person who signed the POA becomes mentally incapacitated, the POA is invalid unless it is a “durable” power of attorney. (See the Discussion below regarding durable powers of attorney).

 

SCENARIO NO. 2:   I am representing buyers in a purchase of a home and the seller is listed as a trust. The trustees are husband and wife and live at the property.  They signed a power of attorney giving their daughter the legal right to act on their behalf. Is this power of attorney effective?

 

RESPONSE:  Likely not. If the trustees of a trust delegate their authority, such delegation must be provided for in the trust. Generally, trusts provide that a successor trustee be appointed, not an attorney-in-fact pursuant to a power of attorney. 

 

SCENARIO NO. 3:  I am listing a home. The sister of the sellers is signing all of the documents pursuant to a power of attorney.  How should I proceed to protect myself?

 

RESPONSE:  Send the power of attorney to the title company for review and to investigate whether the power of attorney is legal and effective. The title company is required to ensure that the appropriate parties are signing the closing documents or it will not issue title insurance. 

 

SCENARIO NO. 4:  Second question regarding Scenario 3 – Assuming the power of attorney is legal and effective, can or should the sister complete the disclosures?

 

RESPONSE:  It is preferable that the owners who have lived in the property complete the disclosures. If they are legally unavailable (i.e., medically incompetent), the sister can complete the disclosures, but noting in the disclosures that she is acting pursuant to the power of attorney and has limited knowledge of the property.

 

SCENARIO NO. 5:  We have just taken a listing on a home, however we have only met with and spoken to the wife. She has provided us with a ten-year old POA that her husband signed so that she could handle all of their banking and real estate matters while he is travelling across the country.  We have been advised by the Escrow Officer that her POA cannot be used to transfer title, because she has filed for divorce. What to do?

 

RESPONSE:  If the POA is not acceptable to the escrow and/or title companies to transfer title, then it cannot validly be used to sign any documents including Listing Agreements and Purchase Agreements. If the owners are going through a divorce, it is highly probable that the husband has, or soon will, terminate the POA. If you wish to list property for sale during a pending divorce, you will either need to have both owners sign the Listing Agreement and all other transaction documents or you will need to wait until there is an agreement signed by the owners or a court order allowing only one spouse to sign.

 

DISCUSSION:

 

A Power of Attorney (“POA”) is a written instrument, executed by a natural person (who has the capacity to contract), known as the “Principal,” who grants authority to act as an “Attorney-in-Fact” (“AIF”), and is sometimes referred to as the “Agent” of the Principal. In California, POA’s are governed by the Power of Attorney law (Probate Code 4000-4545).

 

TYPES OF POWERS OF ATTORNEY:  A POA can be a General POA, granting broad powers, or a Specific POA, granting only power for a specific act such as selling a parcel of real Property. A General POA grants to the AIF all the authority to act in all legal matters that the Principal would have.

 

If the Principal dies or becomes mentally incapacitated, then the POA becomes void.

 

However, a POA can also be a Durable POA, meaning that it survives the mental incapacity of the Principal. A Durable POA is valid if:

 

  1. The Principal had the mental capacity to enter into the POA at the time it was created; and
  2. It meets the criteria of the Durable Power of Attorney law (Probate Code 4124).

 

TERMINATION OF A POWER OF ATTORNEY:  A POA may be terminated by:

 

  1. The death of the Principal
  2. The mental incapacity of the Principal unless it is a Durable POA
  3. The revocation of the POA by the Principal
  4. The resignation of the AIF
  5. The mental incapacity of the AIF
  6. The death of the AIF
  7. The term specified in the POA if there is a time limit
  8. The subject of the POA is extinct (e.g., the principal no longer owns the

            Property that the AIF was authorized by the POA to sell)

 

UNIFORM STATUTORY POWER OF ATTORNEY:  The Probate Code provides for a uniform form for a POA (Probate Code 4401-02). These forms are often available from an escrow company.

 

PRACTICE TIPS:

 

  1. At the initial stages of your agency relationship with a client, ask the client if they intend to use a Power of Attorney at any time during the transaction or if there is any possibility that they may need to use an existing Power of Attorney to close escrow.

 

  1. If a Seller or Buyer is going to be signing any or all documents using a POA, always obtain a copy of that POA before any documents are signed. The title officer/escrow officer should determine whether or not they will accept the documents signed under the authority of a POA to transfer title.

 

  1. Some escrow companies will not accept an older POA because it may have been terminated for one of the reasons specified above and thus will require that a new one be executed.

 

  1. If Property is held in trust, unless the trust documents allow for use of a POA, the Trustee cannot use a POA for any purpose and the trustee will need to sign the transaction and disclosure documents.

 

  1. Sellers cannot use any means to avoid their statutory and common law disclosure duties; those duties cannot be delegated to anyone by means of a POA.

 

  1. If a Seller owns title in their individual name (as opposed to a trust) and is adjudged to be mentally incapacitated, that seller cannot sign a POA at that time as it would be invalid. There will have to be a Conservator appointed for the seller. This can take weeks; therefore, it is essential to have this taken care of before taking any steps to list and market the property.

 

  1. Regardless of a real estate licensee’s relationship with the clients and regardless of the clients’ particular circumstances, real estate licensees should NEVER agree to serve as the “Attorney in Fact” to act on behalf of the client under the authority of a POA or under any other basis.

 

This Weekly Practice Tip is an attorney client privileged document and is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.