I have a new listing where the seller is a financial institution acting under a Power of Attorney. Even the seasoned realtors who have called me about it have misunderstood what that means and confused a Power of Attorney with a Power of Sale. Here’s a little clarification. Honestly — it’s not that confusing!
Power of Sale
A Power of Sale happens when someone defaults on their mortgage. The bank steps in and sells the property. They have a duty to try to achieve fair market value for the property and to take reasonable steps to to do so. If the amount they receive is greater than what is owed to the person who defaulted, the owner is entitled to receive it. If the amount is less than what is owed to the bank, the owner is still on the hook.
Power of Attorney
Often when we do up a will, we are asked by our lawyer to consider doing a Power of Attorney as well; sometimes more than one–for example, one for personal care decisions and another to deal with our property should we lose capacity to do ourselves.
In both cases, the Power of Attorney allows the “attorney” to step in to act. It is invoked either a letter is signed by the person granting it while they still have capacity, or according to its terms.
I can also do up a Power of Attorney giving someone authority to act on my behalf while I’m away. So if I go to Fiji and want to be able to let my daughter deal with my house sale when I’m gone, I can sign a Power of Attorney giving her the authority to do so until I return and/or revoke that authority.
A Power of Attorney for personal care lets whoever has it make personal care decisions for the person who granted it, eg. what kind of medical treatment they will receive once they can no longer make informed decisions for themselves.
In all cases, the attorney must act in the best interests of the person affected. It is a “fidiciary” responsibility, meaning it creates a trust relationship between the vulnerable person and the attorney. (Vulnerable doesn’t have to mean mentally ill or in a coma. If you have the power of attorney because I’m in Fiji, I am at your mercy; I am vulnerable to your decisions, so you have to exercise your discretionary power in my best interests and not sell my home to your boyfriend for $ 1 because he’s homeless and you feel sorry for him.)
Differences between Power of Sale and Power of Attorney
In the Power of Sale situation, you have a financial institution that is protecting its own interests. It will always be a mortgage holder that has acted in a default situation. It has to make reasonable efforts to sell at fair market value, and it has to account for proceeds.
In the Power of Attorney situation, default isn’t part of the equation. Instead, you have a person who can’t act for themselves, perhaps because of mental incapacity, or because of physical absence, and has chosen who they want to act on their behalf in that situation. The attorney must act in the best interests of the seller according to the highest standards of a fiduciary. Quite a difference!
When the seller is acting under a Power of Attorney, or POA, to sell real estate, everything unfolds as it does in any other offer situation , except the POA signs all the paperwork on behalf of the seller. No special forms are required for an offer.
In a Power of Sale situation, the bank won’t give warranties because it has no knowledge of the history of the property. In most cases, they won’t even put photographs up of the listing or outline measurements.
In the POA situation, the realtor lists just as they would normally, with photographs, tax info, measurements etc. But, as in a Power of Sale, the POA often can’t give warranties because the actual owner, the person registered on title, may not know or can’t be trusted to remember what was done or not done to the property if it’s a capacity issue.
Oh, and one other difference: in a Power of Sale situation, because the bank is on title as owner, they are named as the seller on the listing. In a Power of Attorney situation, the POA is named as the seller but on behalf of X, because X is still the owner on title.
So if I was in default on my mortgage and my bank sold my property in a Power of Sale, the listing would say the seller was the TD Bank and you’d never see my name on the listing anywhere. On a title search, you’d find TD Bank named as the owner as well.
But if I had gave a Power of Attorney to TD Bank to act on my behalf that was involked,the listing would say, TD Bank as POA for Peggy Blair. I’d still be there, because I’m still the owner on title, but TD would make the decisions for me. Got it?