USING A POWER OF ATTORNEY - Isenberg & Shuman

Using a Power of Attorney (POA) in a real estate transaction is not as straightforward and simple as it would appear to be. This column will examine many of the issues that need to be considered and will also point out the difficulties that can arise if best practices are not followed.

1. What is a POA? A POA is a legal document wherein the person who gives the POA (the donor) grants another individual (the donee or attorney) legal authority to act on his or her behalf and take certain actions.  The scope of what the attorney can and cannot do must be clearly set out in the POA. In some situations the donor will be uncomfortable in giving a general (unrestricted) POA. In the context of a real estate transaction, I always recommend that the POA be limited so that it can only be used for a specific purpose (i.e. a sale, a purchase or refinancing of a property).  This eliminates the possibility that the POA may be misused or used for a fraudulent or unauthorized purpose. It is also recommended that the POA contain an expiry date.
2. In order to be legally valid, a POA must meet certain criteria. It must be signed by the donor and witnessed by two individuals. There are specific prohibitions concerning who may not be a witness. In addition, if a POA was made outside of the province in which you wish to use it, you should check with a lawyer to see if you need to make a new POA.  Failure to follow the rules concerning execution of the POA may invalidate the POA. It is also important to note that in order to be valid, the donor must have capacity to give the POA.
3. If the POA is being used to buy or sell real estate, the Agreement of Purchase and Sale should make reference to the POA. For example, let’s assume that John and Mary are spouses of one another and are selling a property. Further assume that John is out of the country and unable to sign the Agreement of Purchase and Sale or the closing documents. In that case, John could give Mary a POA to be used solely for the sale of property. In the Agreement of Purchase and Sale, Mary would sign her name as seller and would also sign her name as POA for John. Prior to signing the Agreement of Purchase and Sale, the realtor should confirm that John actually gave Mary a valid POA. The POA should be reviewed (preferably by a lawyer) at the outset to ensure that it is valid and can be used for the sale of the property. Failure to do so, could invalidate the entire Agreement of Purchase and Sale due to a defective POA. It is also recommended that a copy of the POA be provided to the lawyer for both the buyer and seller together with a fully executed copy of the Agreement of Purchase and Sale.
4. If the POA is being used for the purchase of a property and the buyer will be arranging mortgage financing for the purchase, it is important to note that not all lenders will allow the use of the POA for the mortgage. Therefore, although the POA may be used for the purposes of executing the Agreement of Purchase and Sale, the POA may not be used for the buyer to execute the mortgage documents if the lender will not allow it. Some lenders will not allow the use of a POA due to the many instances where POAs have been used for fraudulent purposes.  It is important to give the lender a copy of the POA and obtain the lender’s consent to use the POA at the outset, otherwise the closing could be jeopardized.
5. If the POA is being used for the sale of a property, the donee of the POA should be aware that although it can sign the closing documents to complete the sale, the proceeds of the sale must be made payable to the donor/registered owner of the property. Therefore, arrangements must be made prior to closing to determine how the funds will be provided to the registered owner.