Nightshirts, Bikinis, and Using a General Power of Attorney for Closing
Photo by Marissa DeMott
You or your client has a document entitled “general durable power of attorney.” Will it be sufficient for the closing?
First, let’s discuss exactly what a general durable power of attorney is and what it’s not. Powers of attorney are documents giving attorneys-in-fact or agents power to act on behalf of the principal. By way of example, if Mom names Son as her attorney-in-fact, Son may act on her behalf. Exactly what Son may do depends on how the document is drafted. That’s what the “general” means in a general durable power of attorney: that the attorney-in-fact has authority to do anything the person granting it can do. The attorney-in-fact can buy property, sell property, file tax returns, bring lawsuits, open and close accounts-anything. A general durable power of attorney is a lot like Grandma’s night shirt: it covers everything.
Where’s the “durable” come in? Durable means that the authority remains even if the principal-in our example, Mom-becomes physically or mentally incapacitated. A typical durability provision might read like this: “This durable Power of Attorney is not affected by my physical disability or mental incompetence which renders me incapable of managing my own affairs and shall continue in effect until my death or until revoked by me in writing.” This makes perfect sense, because the reason general durable powers of attorney are given is to insure that the principal’s affairs will be managed if she can’t act on her own behalf. If Mom has a stroke or gets into an auto accident, she wants Son to be able to manage her financial affairs.
So if a general durable power of attorney covers everything, won’t it work for closings? The answer depends on whether the title insurance company permits the document to be used. Usually, a general durable power of attorney can be used if it’s not more than two or three years old and, of course, grants the necessary powers to the attorney-in-fact. However, different title insurance companies have different policies regarding general powers of attorney. To complicate things further, some lenders allow them to be used, and others don’t.
However, “special” powers of attorney are almost universally allowed by title insurance companies and lenders. If a general power of attorney is like grandma’s night shirt, a special power of attorney is more like a string bikini: it covers very little, just the essentials. A special power of attorney will provide that the attorney-in-fact has authority to purchase (or sell) the particular property at issue in the closing. Beyond that, it won’t say anything more. Nothing about tax returns, bank accounts, or anything else. It’s clear, therefore, that the person granting the speicial power of attorney knowingly authorizes the attorney-in-fact to do the one thing the form deals with: buy or sell property.
The lesson here is that with either type of power of attorney, you need to check with the closing attorney to make sure the document is properly drafted, properly executed, and acceptable to the necessary parties to the transaction. And remember, sometimes less is more!
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Hey Russ,
I’ve just subscribed to your blog—pretty impressive information. Funny that today an attorney friend of mine asked me for some information regarding this very subject. Apparently he had a lender call and request some documentation on why the real estate agent had power or attorney…not sure about the specifics because it wasn’t my closing but I sent to him some of my stardard listing agreement forms to look over. I would like to pass your article along to him. I understand that S.C. Law is probably different from N.C. law but many of the rules regarding lenders are changing rapidly across the country. I’m very impressed with your website and your information. I’m proud of you! Lori