Real Estate

More lenders rejecting POAs in real estate deals

By AdvocateDaily.com Staff

A rise in fraud is behind the stiffer rules some lenders are imposing on buyers using a power of attorney for real estate transactions, says Toronto real estate lawyer Sarita Samaroo-Tsaktsiris.

Powers of attorney (POA) in real estate transactions are typically used where a party can’t be present to sign documents because they have a health issue or are not in the jurisdiction at the time of closing, she tells AdvocateDaily.com.

But financial institutions have become increasingly cautious in today’s competitive climate, and will often reject a POA outright or wait to finalize the transaction when the person can provide an original signature, Samaroo-Tsaktsiris explains.

“If people give their lender advanced notice they’ll be out of the country for closing and need their spouse or child to sign on their behalf, lenders may make an exception, but in most cases, the trend has changed to where that isn’t even allowed,” she says.

It’s prudent for the mortgagor to consult with the mortgage advisor to ensure that the power of attorney can be used, advises Samaroo-Tsaktsiris, principal of SST Law Professional Corporation.

“Typically, the banking institutions want to review the document through their legal departments to ensure that it meets their requirements for a valid power of attorney,” she says.

Samaroo-Tsaktsiris says her client was forced to make a hasty trip back to Toronto from Vietnam recently when the lender rejected the power of attorney he arranged for a purchase transaction.

“Even though the power of attorney was prepared and executed properly,” she says, pointing out that purchasers can save themselves grief by understanding the conditions of their mortgage commitments and properly notifying their mortgage advisor of their intention not to be present at the time of signing.

In these types of cases, the lender can either cancel the mortgage outright or they can wait until the person returns before completing the transaction, Samaroo-Tsaktsiris points out.

“In our case, we were able to proceed with the transaction when the party returned to the country, but it’s not a given you’ll be able to do that if a lender is concerned that there may be any indication of fraud,” she says.

Cautiousness on the part of lenders is justified, given cases involving bad actors fraudulently mortgaging properties or transferring titles, Samaroo-Tsaktsiris says, pointing to the case of Reviczky v Meleknia, 2007 OSC 56494 (CanLII), which involved a fraudster acting through a fake power of attorney to sell a house.

Samaroo-Tsaktsiris says another case from a few years ago involving father and son real estate agents demonstrates how easily scams can be perpetrated using fabricated legal documents.

At a seminar with our title insurer, a scenario was described where the son and father shared the same name, and when the son found out his father wasn’t planning on leaving him any assets in his estate, he refinanced all of his father’s properties and absconded with the funds,” she explains.

The Law Society of Upper Canada’s guidelines on powers of attorney in real estate transactions are aimed at reducing the instances of fraud, Samaroo-Tsaktsiris explains.

“Lawyers have to be very cautious because it’s very easy for someone to say here’s the power of attorney, but lenders want to ensure that lawyers don’t get duped by unscrupulous people,” she says.

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