Odds are that, if you’ve been in the real estate business for a few years or more, then you’ve encountered a “power of attorney” (POA) document in at least one of your transactions. But what is it? And what does it mean to you and your clients? Here, we’ll take a look at this device and take away some pointers to protect your clients and your license.
WHAT IS A POA?
A POA is a legal writing by which a principal grants authority to another person, called an “attorney-in-fact,” to “act on the principal’s behalf with respect to all lawful subjects and purposes or with respect to one or more express subjects or purposes.” With regard to real estate, a POA permits the attorney-in-fact to “make decisions concerning all or part” of the principal’s real property, which includes selling a home or acquiring a new one. Much like a real estate agent’s relationship with his or her client, an attorney-in-fact is the principal’s fiduciary and is required in that capacity to act exclusively in the principal’s best interests.
From a real estate agent’s perspective, a POA essentially puts the attorney-in-fact into the shoes of the principal when used to dispose of or acquire property. You might interact with the attorney-in-fact in every way that you ordinarily would with any given client, such as reviewing and signing a listing agreement or touring a property. Indeed, it wouldn’t be bizarre if you never saw or spoke with the principal at all. This will all depend on the attorney-in-fact’s relationship with his or her principal, who are often relatives or long-time friends. It could also depend on the status of the principal, who might be incapacitated or otherwise unable to independently handle a transaction. The attorney-in- fact’s representative and fiduciary status vis a vis his or her principal can give rise to delicate issues that require some additional measure of an agent’s attention. Let’s explore some of the biggest issues, starting with what steps need to be taken to validate a POA.
HOW DO I KNOW IF A POA IS VALID?
Generally speaking, a POA is “legally sufficient” if it contains (1) a date of execution; (2) the principal’s signature or a signature in the principal’s name as rendered by another person in the principal’s presence and at the principal’s direction; and (3) a notary’s acknowledgement or the signatures of two witnesses to the principal’s signature. But this doesn’t do much to help an agent who’s presented with a document purporting to be a POA at a listing appointment or elsewhere. How, for instance, can you know that what appears to be the principal’s signature actually is the principal’s signature? Conveniently, you aren’t required to investigate a POA’s creation. Instead, agents working with an attorney-in-fact can rely on a POA as a matter of law if the POA (1) is presented by the attorney-in-fact designated therein; (2) “appears” valid; and (3) includes a notary’s acknowledgement or two witnesses’ signatures.
As a listing agent contemplating working with an attorney-in-fact on behalf of a principal as a seller, you can put this into practice, first, by satisfying yourself that the attorney-in-fact is who they say they are. This can be an act as simple as asking for the attorney-in-fact’s driver license. Second, take a look at how the principal’s signature is verified in the POA. Is there a notary’s acknowledgement? If not, are there two witnesses’ signatures, neither of which appear to belong to the attorney-in-fact himself or herself? If there’s neither an acknowledgement nor witness signatures, then the document may be defective and counsel should be involved.
As a buying agent working on a deal wherein the seller is the attorney-in-fact on behalf of a principal, a prudent way to fulfill your fiduciary obligation to your buyer is, first, making sure your buyer personally reviews the POA itself. Second, do not offer your opinion on the POA’s legal sufficiency (or lack thereof); this would constitute an unlicensed practice of law because you’re offering a legal opinion to a third person. Instead, advise your buyer that they should run the POA by his or her attorney.
I’M A LISTING AGENT FOR AN ATTORNEY-IN-FACT AND PRINCIPAL. HOW DO I HANDLE THE DISCLOSURE PROCESS?
POA listings can be tricky insofar as the principal might not be capable of personally fulfilling his or her disclosure obligations, while the attorney-in-fact might not have lived in the property and has no knowledge of its characteristics. We’ll explore how to safely navigate this tension but, first, there’s the issue of disclosing to a buyer that he or she is purchasing a property through a POA. Mitigate risk to yourself, the attorney-in-fact, and the principal by causing the attorney-in-fact to disclose his or her representative capacity. Such a disclosure mitigates risk in that the buyer’s agent and buyer are now aware that the principal might not be in a position to disclose all material facts pertaining to the property. This alerts the buyer and buyer’s agent that exceptional due diligence will be required so the buyer can satisfy himself or herself that the purchase will be a sound one. Provide the attorney-in-fact with a CAR form RCSD-S to sign. Make certain you provide the attorney-in-fact’s signatures to the buyer’s agent and collect the buyer’s acknowledgement of receipt.
Now, onto the meat of the issue. Suppose you’re confronted with the most difficult POA situation: a principal who is incapacitated and cannot competently participate in the disclosure process whatsoever. Popular belief holds that a POA listing is exempt from the TDS requirement. This is false. A TDS must be used even when the sale is conducted through a POA. All listing agents should be in the habit of meticulously reviewing CAR forms SA (Seller’s Advisory) and DIA (Disclosure Information Advisory) with their clients, but this is especially critical in a POA sale. The attorney-in-fact might ask you whether or how he or she is to go about completing disclosures. But the most correct response to this question will be consistent with the SA’s and DIA’s advice: “[i]f you do not know what or how to disclose, you should consult a real estate attorney . . . Broker cannot advise you on the legal sufficiency of any disclosures you make” and “[i]f you need help regarding what to disclose, how to disclose it or what changes need to be made to your Disclosure Forms, the best advice is to consult with a qualified California real estate attorney for advice. Your listing Broker cannot and will not tell you what to disclose, how to disclose it or what changes need to be made to your answers.”
The reason why CAR’s forms strongly advise sellers to consult with an attorney regarding their disclosure obligations is because whether a seller (or attorney-in-fact on behalf of a selling principal) satisfies same can be a difficult question of law and fact. By directing the attorney-in-fact to a lawyer, you essentially eliminate the risk that the selling principal and attorney-in-fact will accuse you of mishandling the disclosure process. For example, the attorney-in-fact’s (and selling principal’s) lawyer might draft a document for the buyer’s signature wherein the buyer comes to acknowledge the selling principal’s incapacity and the attorney-in-fact’s limited or lack of personal knowledge about the property. An attorney-in-fact and/or selling principal, after having such a document prepared for them and signed by the buyer, could hardly claim (without frivolity) that you deficiently discharged your duties as an agent during disclosures; nor could the buyer seriously blame you for any purported failure to disclose.
CONCLUSION
POA transactions can be delicate on both the buying and selling side. Avoid assumption making and don’t be shy about referring your clients—the attorney-in-fact and principal alike—to a real estate lawyer when it comes to the disclosure process. Such an action doesn’t represent a shortcoming on your part but, to the contrary, a smart and prudent choice.