What does a realtor need to know about Power of Attorney Use?

Power of Attorney

What is a Power of Attorney?
A Power of Attorney (hereinafter “POA”) gives another person the authority to make personal and financial decisions on the principal’s behalf.  A POA can cover all aspects of the principal’s personal and financial affairs, or may be limited to specific situations and activities.  In short, in a POA the principal (think seller or buyer) gives the attorney-in-fact (now referred to as the “agent” as in “agent acting for the principal”) the right to close the real estate deal on the principal’s behalf and with the principal’s full consent.  

All acts done by an agent pursuant to a POA have the same effect and inure to the benefit of and bind the principal and the principal’s successors in interest as if the principal were performing the task themselves.

General Requirements
Below are the general requirements for use of a Power of Attorney.  While some circumstances will change the requirements, this gives a general overview of the main requirements.   
A Power of Attorney must be durable.  A durable POA means a written instrument that (1) designates another person as attorney in fact (called the “agent”); (2) is signed by an adult principal; (3) contains a clause that states the POA is valid even if the principal later becomes disabled.  In general the language will read something like “this POA is not affected by subsequent disability or incapacity of the principal,” or “This POA becomes effective on the disability or incapacity of the principal.” Similar words must be included to evidence the principal’s intent that the authority conferred on the attorney in fact or agent shall be exercised notwithstanding the principal’s subsequent disability or incapacity;  and (4) is acknowledged by the principal before a notary public.
In general, a durable POA does not lapse because of the passage of time unless the instrument creating the POA specifically states a time limitation. 

Many lenders and underwriters require that a POA be specific to the transaction to be consummated by the agent.  In the real estate context, to make a POA specific to a transaction the principal typically includes a legal description of the property and states what the specific powers are that are given (i.e. power to sell, power to buy, power to encumber with a loan).  Another important factor that impacts POA use is the willingness of Freddie Mac and Fannie Mae to buy a loan in which a POA was used.  Each lender has the right to make requirements that are over and above what state law requires.  For this reason, all POA use must be approved by the lender involved in the transaction. 
In general a POA must always be recorded.  This recording documents the real property records to show that the attorney in fact had the permission to sign on behalf of the principal.  This does mean that the agent must be able to deliver the original document to the title company prior to funding.  

Ratification of the POA 
A POA is revoked by the principal’s express revocation.  A POA also terminates immediately upon the death of the principal.  Any action taken under a POA involving a third party, unless otherwise invalid or unenforceable, binds successors in interest of the principal.  Because of this, the POA should be ratified prior to closing.  This means the escrow officer or assistant have to obtain a phone number where the principal can be reached and speak to them to confirm they are alive, and they have not revoked the POA.  This must be done before the transaction can be funded. 
Seller Proceeds
In order to best protect a seller principal in the transaction, the seller should provide their wiring instructions for seller proceeds directly to the escrow team and not rely on the agent to provide this information.
Who Can Be the Agent?
A principal cannot give a POA to someone that is interested in the transaction.  It should be a neutral third-party.  For example, a buyer or seller may not give their POA to their realtor or realtor’s broker.  Nor could a seller give a POA to their buyer in the transaction.  There is also an express prohibition against self-dealing by the attorney in fact.  This means someone cannot use a POA to deed property to themselves. 

Lastly, in the event someone has granted a POA to their spouse, it is important to know that once there is a divorce that POA is no longer valid.  The Texas Probate Code that governs POAs states that a divorce automatically invalidates an existing POA. 

POA Use and Realtors: What Should a Realtor Do?
Most of the discussion regarding POA use happens between the title company and the principal in the transaction.  To help move towards closing, a realtor needs to get the principal in touch with their closing team as soon as it becomes known that a POA is going to be necessary in the transaction.  Your Texas National Title escrow team will take it from there and handle all of the necessary steps to get you to a smooth closing!

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