A power of attorney is a legal document that authorizes one person, called an agent, to act on behalf of another person, called a principal. The agent owes a fiduciary duty to the principal. This means that the agent can only take actions for benefit the principal and should generally refrain from actions that benefit the agent personally.
Powers of attorney are used to plan for disability. A properly drafted power of attorney allows the principal to specify in advance who will govern his affairs if he becomes disabled. It avoids the need to open a guardianship or conservatorship with the court in order to deal with the principal’s assets. Instead, the agent can use the power of attorney to manage the disabled principal’s affairs without court involvement.
Powers of attorney are often used to transfer real estate. In the typical situation, the principal is physically or mentally disabled and cannot sign document on his or her own behalf. The person named as agent (usually a spouse or other family member) can use the power of attorney to sign the real estate documents—including the deed—without opening a guardianship or conservatorship or otherwise obtaining court permission.
Signing a deed with a power of attorney requires special care to ensure that the deed is worded correctly. The rules that apply can differ from state to state and are not always self-explanatory. To understand these rules, we need to look at the three places where the name of the current owner (called a grantor) is listed on the deed: the vesting paragraph, the signature line, and the notary block.
Our online deed preparation service includes the language needed to properly reference the power of attorney. We also provide step-by-step instructions about how the agent should sign the deed.
The vesting paragraph is the portion of the deed that contains the language that transfers the real estate from the current owner (grantor) to the new owner (grantee). Given that the agent under the power of attorney will sign the deed, who should be listed in the vesting paragraph? Should the vesting paragraph list the grantor even though the grantor will not be signing the deed? Or should the vesting paragraph list the agent even though the agent is not the current owner?
The answer is that the vesting paragraph should always list the principal/grantor and not the agent. The reason has to do with the way land records or organized. When a third party—like a title insurance agent—is searching the land records, that person is trying to “connect the dots” between the different owners in the chain of title. If Ernest Hemingway is listed in the land records as an owner in the chain of title, the title examiner will look for a deed from Ernest Hemingway conveying the property to someone else. When the principal’s name is used in the vesting paragraph, it clarifies that the person conveying the property through the agent under the power of attorney is the same person that acquired the property at some earlier time. This helps connect all of the names in the land records.
The signature line is the place where the grantor signs the deed. It usually includes a blank line for the handwritten signature, with the name of the signor printed beneath the blank signature line. When a deed is signed using a power of attorney, the grantor (and not the agent) is usually listed as the signor in the printed text beneath the signature line. If Ernest Hemingway is the grantor, the signature line would look like this:
____________________
Ernest Hemingway
But remember that the grantor—Ernest Hemingway in this example—will not be the one signing the deed. Instead, the deed will be signed by the agent under the power of attorney. There are two ways for an agent to sign a deed or other document under a power of attorney. Each of these methods requires the agent, as signor, to write an additional phrase beside his name when he signs the deed. If we assume that Scott Fitzgerald is the agent for Ernest Hemingway, the signature may look like this:
Ernest Hemingway, by Scott Fitzgerald as
Agent under Durable Power of Attorney
____________________
Ernest Hemingway
Alternatively, the signature may look like this:
Scott Fitzgerald as Agent for Ernest Hemingway
under Durable Power of Attorney
____________________
Ernest Hemingway
The agent customarily writes one of the two phrases above in his or her own handwriting above the signature line for the principal. This makes it clear that the principal is the grantor, but that the agent is signing the document on behalf of the principal.
The last place that the grantor’s name appears is in the notary acknowledgment. The acknowledgment is the place where a notary public certifies that the person signing the document is who he or she claims to be. There are specific rules that a notary must follow to comply with state law. These rules include verification of the identity of the person signing the document, stamping the document with a notary seal, and (in some states) keeping a record of the transaction in the notary log.
Because the notary must ensure that the person signing the document is who he or she claims to be, the notary acknowledgment should list the person who is physically signing the document. When property is conveyed using a power of attorney, the notary block should reference the agent, even though the principal/grantor is listed in the vesting paragraph and on the printed portion of the signature line. The notary acknowledgment should include appropriate language to make it clear that the agent is signing on behalf of the principal (for example, Scott Fitzgerald as Agent for Ernest Hemingway). Our online deed preparation service automatically includes the appropriate language when the property will be conveyed using a power of attorney.
Attorney Practice Note: California has a standard form of acknowledgment that does not permit customization, so the notary acknowledgment for a California deed will look substantially the same regardless of whether an agent is signing under a power of attorney. The notary that notarizes the form should be able to help complete the notary acknowledgment.
Even though a power of attorney can be used to convey real estate, title insurance companies are not required to accept the power of attorney. If the title insurance company refuses to insure title to property previously conveyed by power of attorney, there could be a cloud on title that affects the property value. There are a few steps you can take to help ensure that title companies are comfortable with property conveyed by power of attorney.
There are different types of powers of attorney. A springing power of attorney comes into effect at a later time, usually upon the mental or physical disability of the principal. A durable power of attorney, on the other hand, becomes effective immediately when it is signed and remains in effect when the principal becomes mentally or physically disabled.
The distinction between springing and durable powers of attorney can be important. If the power of attorney is a springing power of attorney, the title examiner may want to see proof that the principal was disabled when the agent signed the deed. This can be difficult to prove without physicians’ affidavits or other medical evidence. If, on the other hand, the power of attorney is a durable power of attorney, there is generally no need to show evidence of the principal’s disability. Most powers of attorney are structured as durable powers of attorney, so this is usually not an issue. But you should review the power of attorney to be sure that the principal does not need to be disabled for the power of attorney to become effective.
You should also be sure that the power of attorney includes language authorizing the transfer of real estate. If the power of attorney is a limited power of attorney, it may only authorize a few actions. If it is a general power of attorney, it may include sweeping language that gives the agent broad authority to do just about anything on behalf of the principal. Either way, you should be sure that the power of attorney includes language authorizing the agent to transfer real estate.
Many title examiners will want proof that there is a valid power of attorney naming the agent to act on behalf of the principal. They will also want to see language in the power of attorney that gives the agent authority to transfer the principal’s real estate. The best way to reassure the title examiner is to attach the power of attorney to the deed when the deed is filed. Attaching the power of attorney puts clear evidence of the agent’s authority in the land records. This could prevent title issues in the future, when the power of attorney may be difficult to locate.
A power of attorney is a fiduciary instrument. This means that the agent must only act on behalf of the principal and not to benefit the agent. Be sure that the agent is not acting for his or her own benefit, conveying the property to himself or herself, or releasing a mortgage made by the agent in favor of the principal. These types of situations can create title problems and possibly give rise to claims of self-dealing.
Consult with an attorney if you have questions about what actions the agent can and cannot take and whether there are any precautionary steps the agent should take to minimize the likelihood of legal challenges. This is especially important if the agent is taking actions that directly or indirectly benefit the agent personally.
Our online deed preparation service makes it easy. Just complete our step-by-step interview, and our software will create a document that is customized for your state and your specific situation. We also include specific instructions for signing the deed and filing it in the land records.