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Thursday, November 7, 2013

Power of Attorney

QUESTION: 
The borrower is not available to attend the closing. Besides state law, what are other requirements to consider if the borrower wants to use a power-of-attorney to permit an agent to sign the closing documents?

ANSWER: 
Recently, Fannie Mae announced changes to its Sellers Guide regarding the use of a Power of Attorney (POA). These new requirements are only applicable to loans sold to Fannie Mae, however it’s advisable to keep these rules in mind on all loans because many investors will adopt Fannie Mae’s rules as overlays on all transactions. In addition, the lender and title company must approve both the use of a POA and the actual POA to be used in the transaction. The most noteworthy changes enacted by Fannie Mae are as follows:

1) The name on the POA must match the name on the loan documents; it must reference the address of the subject property, it must be dated so it’s effective when the agent signs the document and it must be notarized. In addition, if the agent named in the POA executes the original 1003, the borrower must be actively serving in the US armed forced outside the US or the POA must expressly state an intention to secure a loan on a specific property.

2) Except as otherwise required by applicable law or unless the agent is the borrower’s relative, the following individuals may not sign the note or mortgage as an agent of the borrower pursuant to a POA: the lender, loan originator, title insurance company, or financially interested real estate agent. Additionally prohibited from acting as an agent are any of these entities’ employees, employers, relatives, or affiliates.

3) Except as required by applicable law, a POA may not be utilized to sign a note or mortgage if: i) no other borrower executes the note or mortgage in person in front of a notary public (this restriction does not apply if the designated agent is either the borrower’s attorney or relative); or (ii) it’s a cash-out transaction.

It is suggested that all lenders develop a policy regarding the use of POAs which incorporates agency guidelines, investor overlays, applicable law and its own Best Practices considerations.

The Consumer Financial Protection Bureau recently issued guidebooks to help the public better handle the responsibilities of acting as a financial caregiver. These guidebooks are posted to its website. One of these guidebooks addresses the use of a POA and a lender may find it advantageous to review this booklet when formulating its policy. Mortgage brokers also need to be aware of the policies of each of the lenders to which they place loans.

Most importantly, all parties to the loan transaction must make sure they are aware of the use of a POA as early as possible so its use does not suspend or abort a loan transaction.

Michael Barone
Director/Legal and Regulatory Compliance
Lenders Compliance Group