The majority of property transactions are performed with the consent and knowledge of the legal buyers and sellers of the property. However, there are circumstances in which the legal right to make the transaction must be shifted to someone else.
Transferring the legal right to buy or sell property for another can be performed by granting power of attorney (POA) to specific individuals or corporations. If someone holds power of attorney, he or she has the legal authority to act in specific ways for another person, such as buying or selling real estate.
Read further to learn what power of attorney means, including various requirements, the limited and general powers of POA, the legal implications of granting POA, and when or why someone would choose to grant another power of attorney.
Also, learn how to determine the best person to select for your Power of Attorney and how to approach another about acquiring power of attorney.
What Is Power of Attorney?
The power of attorney is an important and complex legal arrangement with the potential to provide its executor with significant legal power. While all states accept the power of attorney, rules and requirements often differ between states.
- Power of attorney can be limited to a specific activity or be general in application.
- It can be temporary or permanent.
- It can be durable or non-durable.
- To invoke power of attorney, the agent must present the document conferring power of attorney upon him, her, or them.
- Real estate agents and financial institutions may require specific language in the document before accepting the agent’s right to authorize the transaction.
- The agent has a fiduciary responsibility to the principal.
In all ways, the agent is required to act with loyalty to and the best interest of the principal. For example, the agent cannot sell the principal’s property to himself for significantly less than market value unless that is in the best interest of the principal.
The agent’s authority may be challenged in court by another interested party if it perceives the agent is failing to act in the best interest of the principle.
If an agent, Jane Brown is acting with power of attorney for principal John Doe, she must sign legal documents as follows: John Doe, by Jane Brown under POA; or Jane Brown, attorney-in-fact for John Doe.
Durable vs. Non-Durable Power of Attorney
A durable power of attorney remains in effect if the principal becomes incapacitated. A non-durable power of attorney terminates if the principal becomes incapacitated.
In any case, the principal can only grant power of attorney to another while in good mental health and of their own free will. Otherwise, someone seeking power of attorney will need to work with a medical professional and an attorney to be granted POA.
The medical professional is responsible for declaring the principal incompetent and the attorney drafts the power of attorney documents.
Power of attorney begins on the date specified on the POA contract. It can be revoked in writing or on a date specified in the document. Certain circumstances may revoke POA automatically including revocation by a principal of sound mind, divorce in the case of a spouse acting as agent, the death of the agent, or the death or incapacitation of the principal.
Limited vs. General Powers of Attorney
The power of attorney can be general or limited to a specific transaction or other limitation. A limited power of attorney is also known as special powers of attorney. The contract is drafted to include only those actions permitted to the agent in the name of the principal.
For example, power of attorney may be limited to a specific real estate transaction or accessing a particular account.
A general power of attorney grants broad authority to act in all ways for the principal from selling property to accessing accounts. However, some financial institutions do not honor a general power of attorney for large transactions and will require a specific power of attorney to complete the action.
The Legal Implications of the Power of Attorney
Since an agent with the power of attorney can misuse those powers rather easily, the granting party is prohibited from designating an agent without full consent and knowledge. Agents can enter into binding legal contracts, which can be questionable, or an agent may have unethical practices or make preventable mistakes. In other words, an agent potentially could cause the principal untold damage to his or her reputation and financial loss.
Furthermore, a poorly chosen agent or poorly written contract can expose the principal to tort liability, charges of negligence, or criminal wrong-doing. A principal granting power of attorney should select a trustworthy, impartial third party with some legal experience or knowledge to avoid problems of this nature.
If someone who needs to grant power of attorney is incapacitated in any way, the courts must appoint an estate guardian to do so.
When and Why Would Someone Need or Want to Grant Power of Attorney?
Sometimes you need to grant someone else power of attorney for convenience. For example, if you are selling or purchasing property, and are unable to attend to it personally because you are traveling or otherwise unavailable, you can grant power of attorney to someone to act in your stead for this specific transaction.
Another reason for granting power of attorney has been alluded to earlier in this post: you want to be prepared in case you become incapacitated, have an unexpected absence, an accident, or become seriously ill. The power of attorney contract should detail whether the power of attorney is temporary or permanent.
If you have not assigned an agent through power of attorney, you may be exposed to a public proceeding for the court to make decisions for you if you are determined to be incompetent or incapacitated.
Approaching Someone to Grant You Power of Attorney
In some cases, typically the adult children of aging parents, it may become necessary for someone other than the parents to make legal decisions or sell their property.
Since power of attorney may only be granted by someone who has full consent and knowledge, and who is not considered incompetent or incapacitated in any way, the adult child must speak with parents early.
Approaching them before incapacitation has occurred can clear the way to grant someone power of attorney to be implemented at a specific time, such as upon severe illness or mental deterioration.
Who Should Receive Power of Attorney?
The only requirement for being granted power of attorney is that the party chosen as agent may not be a minor or otherwise incapacitated. Otherwise, spouses, children, or close family members are often designated agents.
You can name more than one, but if one of the co-agents is unavailable, the remaining agent may not be able to act. You should name successor agents to guard against the future revocation of the current agent.
Assigning power of attorney is an easy way to buy and sell property when you are not available. It also protects your interests when you are incapacitated. With a complex transaction such as dealing with property, granting power of attorney to a trustworthy and knowledgeable party can be your best hedge against fraud and errors.