Why Would a Power of Attorney Be Needed to Complete a Real Estate Transaction?

Only the title owner can transfer title to a property, but situations may arise where the legal owner is not able to sign the purchase agreement or transfer deed. He might be ill, elderly or away on military service. If the title owner is not physically present during a transaction, the buyer will deal with someone holding a power of attorney on his behalf.

A power of attorney is given by a living legal owner (the principal) to an agent. It authorizes the agent to make decisions and act on the owner's behalf. The agent is typically a relative of the principal, or someone the principal trusts. The power of attorney may appoint more than one agent. If it does, the document will specify whether the agents must act jointly, or whether the signature of one of them is enough to authorize a transaction. Once a power of attorney is given, all communications relating to the property and the transaction must pass through the agent and not through the title owner.

If the seller is physically ill, mentally incapacitated or absent at closing, the buyer is likely to deal with an agent acting under a power of attorney. There are several types of power, appropriate to each situation. A "non durable" power is only effective while the principal is mentally capable. A "durable" power survives subsequent incapacity and is commonly used where the principal is elderly or mentally ill. A "limited" power of attorney, as its name suggests, is limited in scope to a particular transaction, and only applies for a limited amount of time. This form is commonly used for sellers who are unable to attend closing.

An agent under a power of attorney has certain duties set down by law. First and foremost, he must act in the owner's best interests. He must perform his duties with reasonable prudence. He must keep accurate records, and not mingle his possessions with those of the principal.

For a buyer, dealing with an agent under a power of attorney is not materially different from dealing with the owner. The buyer must, however, see the power of attorney document. It is crucial that he deals with the named agent or agents, and that the power of attorney gives the agent authority over the subject property. Typically the buyer's attorney or title company will verify that the agent has valid authority to conduct the transaction in question. After that, the real estate transaction proceeds in the usual manner, except that the agent will sign the contract and transfer documents.