I am thrilled to have Ed Rybczynski guest post for you today. I hope it is the first of many. I met Ed on Active Rain and I love the way he writes. His true expertise is in the field of mortgage fraud. Here, Ed discusses a serious issue, Limited Power of Attorney, and who you should not assign it to if you are in a purchase transaction. Thanks Ed!
Limited Powers of Attorney: Borrowers Should Think Twice!
By Ed Rybczynski
The National Notary Association has issued a warning to consumers regarding the risks of using a Limited Power of Attorney (LPOA) in real estate transactions. An LPOA is a legal document by which a person (the principal) authorizes another (the attorney-in-fact) to make specific decisions for the principal. Borrowers are sometimes asked to sign an LPOA authoring a title company to sign loan documents on their behalf.
The practice is often characterized as a cost reduction measure.The National Notary Association is concerned the LPOA could become a tool used by predatory lenders to place unwitting consumers in mortgage products much different than those anticipated. It’s a well established fact that millions of mortgages originated with
ridiculously low teaser rates are poised to reset in the near future. Additional millions of homeowners are desperately seeking options to lift the burden of exotic loans used to purchase properties. Consumers attempting to refinance existing mortgages are particularly vulnerable due to troubled housing markets and a well publicized “credit crises.” The problem is not so much the use of an LPOA as it is the choice of a title company employee as the attorney-in-fact.
The title company is paid only if transactions close and is therefore confronted with an inherent “conflict of interest.” Worse still, title companies depend on a steady stream of business from mortgage brokers and other lending sources, the very players who derive financial gain from the alteration of loan documents. Points to consider: The use of an LPOA doesn’t reduce the closing fees charged to a borrower. Prudence is required when selecting an attorney-in-fact should it become necessary to rely on an LPOA. Possible choices would include a spouse, sibling, parent, trusted friend, or lawyer. Under no circumstances should a commissioned real estate professional offer, or agree, to act as an attorney-in-fact on your behalf.
You must be available to speak to your attorney-in-fact by phone while the closing is taking place. You want to discuss every minor detail of your loan product and every line item on the settlement sheet. Pay special attention to the monthly payment, prepayment features, negative amortization features, adjustable rate terms, and yield spread premium.
You are entitled to a true copy of every document signed on your behalf. Protect your interests by comparing the final loan documents to their preliminary counterparts.
You’re probably unable to rectify LPOA abuse in a prior transaction on your own. It’s saddens me to make that statement, but it’s true. Retain the services of an attorney should you suspect that you were the victim of LPOA abuse.
The suggested use of an LPOA by your title company or lender doesn’t necessarily imply that predatory lending is at play. Why take chances? Avoid the use of an LPOA to close a real estate transaction unless personal circumstances dictate otherwise. Wisely choose an attorney-in-fact to attend closing and conscientiously represent your interests.
For additional information, visit Mortgage Fraud Forum and Title-opoly. For applicable documents published by the National Notary Association, see Fact Sheet: Limited Powers of Attorney and Limited Powers of Attorney: A License to Steal.
5 responses so far ↓
1 Kristal Kraft // Oct 21, 2007 at 11:17 am
Ed, Your advice is excellent. Seldom do borrowers consider the “conflict of interest” aspect of using a LPOA. Typically they consider it merely a convenience. As a broker I have a policy to never do a POA, I prefer to have an EXTRA set of eyes on the closing docs. The more the better in my estimation.
kk
2 Ed Rybczynski // Oct 22, 2007 at 6:41 am
Carole
Thank you for the opportunity to be a part of the Cleveland community. Your blog is wonderful.
Thank you, Kristal, for the kind words.
3 Carole Cohen // Oct 22, 2007 at 9:32 am
Kristal I have had two clients ask me to do this…once because of illness and once because they were out of town. They were hurt until I explained why it wasn’t their best choice.
Ed, your post is so well written, I know it will help people in NE Ohio understand the issue better. This is one of those puzzle pieces that can help people avoid bad choices. Thank you again!
4 moni // Oct 22, 2007 at 1:25 pm
Excellent post Ed and CC what a great idea to have Ed guest blog for you! This is timely information as I know an agent who was asked to be a POA!
5 Carole Cohen // Oct 22, 2007 at 5:21 pm
Hi Moni, as a Trainer I bet you have to address this question. Yes, Ed was kind to share his expertise.
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