If you are buying or selling a property and you will not be able to sign the closing documents, you may need to use a Power of Attorney to close your transaction.
Before deciding to use the Power of Attorney, legal advice should be obtained so that your lawyer can advise you of the consequences of giving a Power of Attorney. A Power of Attorney is a powerful document which gives the person you name as your attorney (the donee), powers to do things and act on your behalf. The importance of obtaining legal advice prior to signing a Power of Attorney cannot be overstated.
When dealing with real estate, a Buyer or Seller may give a Power of Attorney for property. The donee of your Power of Attorney may use the Power of Attorney to make decisions concerning your property including buying, mortgaging or selling the property on your behalf. It may be problematic to use a generic Power of Attorney from a website or purchase a Power of Attorney kit without the benefit of legal advice. These templates often do not have any limitations, conditions or restrictions. A Power of Attorney will give someone the ability to do things like write cheques on your bank account or mortgage or sell your property without you knowing it or approving of such actions. Signing such a Power of Attorney without legal advice can lead to disastrous results.
By seeing a lawyer, he or she will explain the risks of signing a general Power of Attorney. When using a Power of Attorney for real estate, my practice is to recommend that the Power of Attorney is restricted to the specific transaction so that it can only be used for limited purposes i.e. to sell, purchase and mortgage a specific property. That way, the donor of the Power of Attorney will have some protection from the risk of the misuse of the Power of Attorney without the donor’s knowledge and consent.
Here are some other important matters to consider when using a Power of Attorney for real estate transactions:
- If you are purchasing a property and obtaining a mortgage, do not automatically assume that you will be able to use a Power of Attorney for the purchase transaction. Powers of Attorney are major source of mortgage fraud. As a result many lenders and title insurers may not allow them to be used. Check with your lender first before using a Power of Attorney for a real estate transaction.
- If using a Power of Attorney for a sale, keep in mind that the sale funds must be made payable to the registered owner and not the attorney. If you will be out of the country for the closing you will need to make prior arrangements for delivery of the closing funds to you following closing.
- Do not sign a Power of Attorney without first obtaining legal advice.
- You should let your real estate lawyer know at the outset that a Power of Attorney will be used for the closing and give your lawyer a copy of the Power of Attorney if you already have one so that the lawyer can confirm that the Power of Attorney can be used for the transaction.
- You will likely need to provide your real estate lawyer with the original Power of Attorney for closing. A photocopy is typically not accepted.
- There are formal requirements respecting the signing of the Power of Attorney. If the requirements are not met, the Power of Attorney may be invalid.
- If you are the donor of the Power of Attorney, you should provide your lawyer with your contact information such as a telephone number or e-mail address where you can be contacted so that the lawyer can verify that the Power of Attorney was signed by you, that you approve of it being used for the transaction and that the Power of Attorney has not been revoked.
Relating to point number 4 above, I have encountered situations where an Agreement of Purchase and Sale was signed by the Seller with the use of a Power of Attorney. Unfortunately, the Power of Attorney was not carefully reviewed and it contained a clause which provided that it could only be used if accompanied by a letter from a medical doctor certifying that the donor was mentally incapacitated. When I was provided with the Power of Attorney, I asked the realtor and the attorney if they had such a letter. They did not. I warned them that the Power of Attorney was invalid and could not be used without such a letter. More importantly, if the Buyer wanted to get out of the deal, it may have been able to use the invalid Power of Attorney as a reason to cancel the transaction. Fortunately, both the realtor and the attorney ultimately obtained the letter and the deal was able to close. Similarly, I have seen situations where the Power of Attorney used to sign the Agreement was invalid because it was not properly executed or it was restricted and could not be used for the transaction. The lesson here is that a Power of Attorney should always be carefully reviewed before it is used for a real estate transaction.