Using a Power of Attorney in mortgage transactions can be both convenient and risky. It allows borrowers to authorise another person, known as the agent or attorney-in-fact, to act on their behalf in various legal matters, including the execution of mortgage documents. However, improper use or fraud can lead to serious consequences for all parties involved.
Power of Attorney (POA) is a legal document that gives one person the authority to act on behalf of another. In the context of mortgage lending, it is often used when the borrower cannot attend the closing due to incapacitation, military service, or being out of the country. There are several types of POA, each granting different levels of authority:
A limited or specific Power of Attorney is commonly used in mortgage lending. It allows the agent to perform specific tasks, such as signing documents for a particular property, for a limited time or under specific circumstances. This type of POA typically becomes null if the principal becomes incapacitated or dies. A general Power of Attorney grants broader authority but also becomes invalid if the principal is incapacitated. A durable Power of Attorney, on the other hand, remains effective even if the principal becomes incapacitated, making it suitable for long-term financial management.
For example, Fannie Mae requires that the POA be durable, recorded, and reference the specific property. This ensures that the agent has the legal authority to bind the borrower in the transaction.
For instance, Stacey Sprain notes that while POA can streamline mortgage closings, it increases risk, especially if not properly executed or used without a valid reason. Similarly, Rob Steeg emphasizes the need for caution when dealing with POAs, particularly in cases of self-dealing.
The case of Richland State Bank v. Benny L. Depingre et al. highlights the risks of self-dealing.
