A power of attorney ("POA") is a legal document authorizing one person to act on another’s behalf. POAs can be used to conduct financial transactions, buy and sell real estate, encumber real estate, provide for health care directives or manage one’s general affairs, just to name a few. Because of the significant power bestowed by a POA, it is critical that you understand who the parties are, and ascertain the nature and extent of the grant of power under the document.
There are typically two parties to a POA. The person who authorizes another to act on his or her behalf is commonly called the "grantor" or "principal." The person authorized to act is commonly called the "attorney in fact" or "agent."
Because a POA is designed for use in the absence of the grantor, the attorney-in-fact must present adequate proof that he or she is duly authorized to act on behalf of the grantor. Adequate proof usually consists of an original, notarized document. A photocopy of a POA is never acceptable. Additionally, you may not accept a recorded POA as evidence that a grantor has given authorization to another to act, as mere recordation of a document does not necessarily render it valid or legitimate (although some states require POAs to be recorded, and you should verify recordation when working in these jurisdictions). An ordinary POA is revocable by the grantor, and otherwise terminates upon the grantor’s death or incapacity. However, there are certain types of POA that continue through a grantor’s incapacity (see infra). In no case is a POA valid when executed and delivered by an incompetent grantor.
Some states may have statutory provisions that a document must meet before being considered a proper grant of power. In other states, there may be no specific format. Be sure to know what your state POA requirements are. At a minimum, any POA you accept must meet the following standards: (i) the POA document must be dated and must be signed by the grantor; (ii) the POA must be executed with some standard of formality; (iii) the POA must be notarized; and (iv) the POA must be reasonably certain as to the power being conveyed. Because POAs can be extremely broad, extremely limited, or anything in between, the document should state with specificity what power(s) is/are being granted. This is especially so when the instrument is being used to convey an interest in real estate.
In most states, a POA given for the purpose of conveying an interest in real estate must comply with the requisite standards of any conveyance of real property. This means that the same standards required for the execution of a deed or mortgage are required for the execution of a POA. In many jurisdictions, this means that the lack of a notary’s acknowledgement is fatal. This may also mean that a POA should include one or more witnesses. Therefore, knowledge of state requirements and careful attention to detail are essential when administering any conveyance under a power of attorney.
As previously mentioned, POAs can be used for many purposes and can take many forms. Some common examples are as follows:
- General power of attorney: a broad grant of power to an agent to transact business on behalf of the principal.
- Special or Limited power of attorney: a grant of power to an agent to conduct only a certain, specified matter for the principal.
- Durable power of attorney: a grant of power to an agent that continues after the disability or incapacity of the principal.
- Irrevocable power of attorney: a grant of power to an agent that the principal cannot revoke.
- Springing power of attorney: a grant of power to an agent that does not take effect until some specified future date or occurrence (commonly the grantor’s incapacity).
When accepting a power of attorney in the context of a transfer of interest in real estate, you must carefully review the document and be certain that it authorizes the agent to act. If you are presented with a special or limited POA, you should ascertain that the agent has been specifically authorized to convey, encumber or otherwise transfer an interest in the subject real estate. This does not necessarily mean that the subject property be identified by address or legal description, but rather that the grant of power unquestionably authorizes the attorney in fact to act on behalf of the grantor with respect to either the subject property, or all of the grantor’s real estate.
Finally, before proceeding with a transaction under a power of attorney, you should verify that the POA is still valid and unexpired. At a minimum, you should review the public records to ascertain that a revocation of the POA has not been recorded. You should also verify that the grantor is not deceased, incompetent or bankrupt. Additionally, you may want to contact the grantor personally to verify that the POA is legitimate, and that the attorney in fact is not an imposter or fraud. Forged or fraudulent POAs result in considerable claims losses.
Accordingly, extreme caution should be exercised at all times when dealing with POAs.