Alan B. Fields SVP – Director of Underwriting Services WFG National Title Insurance Company

Do You Have a Duty to Accept a Power of Attorney?

From time to time, you will find yourself being told “you must” accept this POA and some will even threaten lawsuits. Of course this is a huge red flag that something is wrong with the underlying transaction. The demander will sometimes even provide excerpts from the POA or statute that seems to say that you may be liable if you don’t accept the POA (it will usually be out of context). As soon as you get that type of demand, involve your underwriter or the WFG legal department.

Some Powers of Attorney do contain language that purports to require third parties to accept them – and that language has no meaning. Your company and WFG are not a party to that POA.

However, some of the more modern statutes, including the Uniform Power of Attorney Act, were drafted in frustration with banks and brokerages fouling up people’s well-drafted estate plans by refusing even well-drafted POAs because they “aren’t on our form.” The upshot is that some state statutes now purport to shift liability for costs and attorneys’ fees to any party improperly declining to rely on a POA.

Under the Uniform Power of Attorney Act, there are some critical time frames to be observed. Once a POA is presented, you have seven business days in which to request the opinion of counsel or translation, and five days after receipt of those documents to act or decline.

The Uniform Power of Attorney Act then provides six basis on which you may decline to accept an acknowledged POA for your transaction. The pertinent part of Section 120 reads:

“(b) A person is not required to accept an acknowledged Power of Attorney if:

(1) the person is not otherwise required to engage in a transaction with the Principal in the same circumstances;

(2) engaging in a transaction with the agent or the Principal in the same circumstances would be inconsistent with federal law;

(3) the person has actual knowledge of the termination of the agent’s authority or of the Power of Attorney before exercise of the power;

(4) a request for a certification, translation, or an opinion of counsel under Section 119(d) is refused;

(5) the person in good faith believes that the power is not valid or that the agent does not have the authority to perform the act requested, whether or not a certification, translation, or an opinion of counsel under Section 119(d) has been requested or provided; or

(6) the person makes, or has actual knowledge that another person has made, a report to the [local adult protective services office] stating a good faith belief that the Principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting for or with the agent.

These requirements will, of course, differ from state to state.

As a title insurance agent and insurer, we take the position that we do not have a duty to insure any transaction other than in strict compliance with all commitment requirements. That’s why we write those requirements so carefully. Unless your commitment includes some very unusual language regarding Power of Attorney acceptance, we would normally say you can decline to close until you have a deed or mortgage properly executed by the Principal. Thus exception (1) will almost always apply in a title insurance context.

Because of the trend in statutes requiring acceptance of POAs, the decision to decline is not one to be taken lightly. On the other hand, we have experienced significant claims and outright frauds arising under POAs – so reliance on them is to be very carefully scrutinized. Before agreeing to accept a POA, you must understand “Why?” the parties can’t personally be available to sign as discussed in Part 1 of this series. Review the legal requirements and be sure that the POA not only meets the formalities in the state where executed, the state selected as the governing law, and in the state where the property is located; but that it grants the specific powers needed for your transaction in all three (if different). You must properly set up your form documents, signature blocks and authorizing affidavits for the use of a POA.

Powers of Attorney are a powerful tool and a great convenience in some transactions but must be approached and utilized with great care.

Alan B. Fields SVP – Director of Underwriting Services WFG National Title Insurance Company