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“Power of attorney” (POA) is a flexible legal tool that grants permission for someone to act on another’s behalf on a temporary or permanent basis. In real estate, this can be an incredibly useful option for all sorts of situations, like if you had to sell your house but couldn’t be there due to a job relocation or deployment.
Many people also work out power of attorney arrangements with their loved ones through estate planning, in case the unexpected happens. For health reasons, you may need to step in and handle affairs related to selling the family home or make plans to entrust your son, daughter, or close friend with this very important job.
However, selling a home is complicated in its own right. Add power of attorney to the mix, and you face an additional set of rules, paperwork, and communications. In this guide to power of attorney to sell property, we’ll cover the different types and scopes of power of attorney that exist, how to talk about power of attorney before you need it, and the steps necessary to make sure it’s honored (without being abused). Finally, we’ll reflect on the philosophy of power of attorney and the enormous responsibility it bears.
Power of attorney basics: Who’s the principal, and who’s the agent?
POA documents will use special legal terms for the individuals setting up this arrangement:
- The principal is the person granting the power of attorney to someone else.
- The agent or attorney-in-fact is the person who receives the power of attorney to act on someone else’s behalf.
The agent will have a fiduciary responsibility to always act in the best interest of the principal for as long as the power of attorney is valid. A fiduciary, according to the Consumer Financial Protection Bureau (CFPB), is a caregiver in charge of making financial decisions.
A power of attorney for every situation
Whether you anticipate that you’ll be on the principal or agent side of a POA agreement, you should be familiar with the different types of power of attorney, their uses and limitations, as well as any restrictions around when to set one up so that it’s ready when you need it. Otherwise, you or your loved ones could be leaving your assets — like the house — at risk.
A non-durable power of attorney allows an agent to act on someone’s behalf for a limited period of time or to complete one particular transaction. Think of it like hiring a contractor to come in for a one-time job. Once the project is over, the contractor moves on to his next project. Similarly, with a non-durable power of attorney, once the transaction is complete, or the time period ends, the power of attorney is revoked.
A durable power of attorney is when an agent can take over all aspects of someone’s affairs, in case he or she were to become incapacitated. This type of power of attorney kicks in as soon as the principal is incapacitated and stays valid until the principal’s death. However, incapacitation puts both the principal and agent at risk of a variety of scams that target elderly or infirm people. The CFPB has put together a list of actions you can take to protect yourself and your assets from being abused in this type of circumstance.
A special or limited power of attorney is a different kind of non-durable power of attorney used in states like California for real estate transactions when the seller can’t be present due to absence or illness. Because it’s limited in both time and scope, it’s a great tool when you want to give someone a very specific responsibility.
A medical power of attorney gives an agent (often a family member) authority over someone’s medical care once a doctor determines they are unable to make decisions on their own.
A springing power of attorney is a special feature you can add to a limited or a durable POA agreement that makes it “spring” into action once a certain event occurs, like a trigger.
If you’re using a power of attorney for infirm or elder family members, you can split responsibilities between several family members, and give each a different scope of power of attorney. For example: One sibling gets a power of attorney exclusively to deal with financial issues — like paying bills; another sibling has a medical power of attorney and is in charge of all decisions involving medical care; and a third sibling has a limited power of attorney dealing with real estate.
In any power of attorney arrangement — and certainly when you’re splitting up the roles — make sure the actions and responsibilities for each party are explained with as much detailed as possible in the agreement. In the case of real estate transactions, according to the CFPB, states like Arizona, Florida, Georgia, Illinois, Oregon, Virginia, Alabama, Nebraska, Michigan, California, and Texas have their own rules and regulations for power of attorney, so you will want to either consult the bureau’s website or speak with a lawyer in your state to determine the kind of POA you will need to set up arrangements for property sales.
Striking up the conversation: How to talk about power of attorney
Power of attorney is not the easiest subject to bring up with loved ones, but it’s a conversation you need to have when all parties are active and healthy. According to a 2019 Report from Merrill Lynch and Age Wave, only 45% of Americans have a will, and just 18% have the recommended estate planning essentials: a will, a healthcare directive, and a durable power of attorney. Whether you’re the elder parent, or the adult child, you will want to have this talk sooner than later.
Other situations in which you may want to bring up the subject of POA include:
- A medical diagnosis: If you or a loved one face a chronic or serious condition that will require extensive medical treatment or could cause incapacitation.
- An upcoming relocation for work or retirement: If you or a loved one are planning on moving away from family and friends.
- The death of a spouse or another close family member: When your family has to deal with an estate or probate process, you may want to take steps to make sure your own estate planning is buttoned up.
The key in successfully preparing a power of attorney is working with your lawyer and your family members to make sure the document is signed, notarized, and recorded before you move away, or while the relevant parties still have the capacity to legally consent to the process.
Because we know this isn’t as simple as picking up the phone and making small talk, here are a few ideas Forbes suggests to strike up a power of attorney conversation when you aren’t sure what to say:
- Share and update your own plans.
Let’s say you’ve recently taken some estate planning measures. Use the status update to bring up the subject with other members of your family. Then ask about their plans.
- Provide a set of blank documents.
The CFPB provides a power of attorney template that you can use as a starting point for your own document. The bureau also provides a guide with tips on how to adapt to your own state. Drop these papers off for family members to peruse and read. It could be as simple for them at that point to fill in the blanks and have the documents notarized.
- Explain that you are facing a life change.
If you need to relocate for work or retirement, or you’ve received a medical diagnosis that will require a third party’s assistance in completing the sale of a property, starting with your “why” can be easier than leading with the subject of power of attorney.
- Organize a family meeting with parents and siblings.
Sometimes formality works on your side so people know that whatever you’re discussing will be important. Use this time to explain that there’s a need for a power of attorney and discuss with everyone what needs to happen to arrange for POA.
- Understand other tools in estate planning as well as the consequences of death without a will, living trust, or deed.
If you or a loved one dies without making the proper arrangements or including the “magic words” to the property deed, your heirs will be unable to even enter the property before a probate is selected by the state. Other estate-planning tools include a Living Will, a Living Trust, and a Last Will.
How to get power of attorney if you need it
To obtain power of attorney, you will need to follow a certain series of steps (the order and specific steps may vary depending on where you live).
- Understand the obligations of being an agent in a POA arrangement.
- Evaluate that the principal has the capacity to sign a power of attorney agreement.
- Discuss the issue with the financial institutions (mortgage holders) and physicians (whenever there may be questions about capacity).
- Hire an attorney or contact a legal website like Legal Zoom, online on-demand legal services with a 100% satisfaction guarantee on all their filings.
- Be supportive. Giving up control of a real estate transaction can be a hard adjustment for an elder family member.
- Ask a lot of questions and make sure you understand the obligations for all parties under the document.
- Make sure that the document outlines actions with as much detail as possible to avoid any gray areas that can be misinterpreted.
- Get the final document notarized or witnessed — depending on your state’s requirements if they haven’t enacted the Uniform Power of Attorney act of 2006.
- Record the power of attorney with the county clerk office where the home is located — depending on your state or county requirements.
- Make authenticated copies of the document for safekeeping.
- Always present yourself correctly as someone’s agent.
Special considerations for selling a house using power of attorney
Not all power of attorney agreements will include the authority to sell property. So first you need to make sure that your power of attorney covers real estate transactions.
In certain states, like California, “General or durable power of attorney cannot be used to sell real estate” says Glen Henderson a top-selling real estate agent in San Diego who also specializes in probate sales. “So, in order to start the process of selling a house with power of attorney, you have to get the limited power of attorney for the transaction drafted, notarized, and recorded.”
Second, partner with a real estate agent who has experience dealing with power of attorney real estate transactions. “A good tip,” Henderson says, “is to connect with agents who’ve worked with members of the military.”
“Because of deployments, members of the armed forces tend to do a lot of power of attorney transactions,” Henderson notes.
In many instances where the principal is healthy and of sound mind, the principal will not only get to make a final decision on the real estate agent who gets the listing, but also will get to approve the listing price.
Third, you and your agent will need to work with the title company and the mortgage holder (plus any additional financial institutions) to ensure the power of attorney will be honored.
After you complete these steps, your transaction will proceed normally with the exception that you will sign all documents in a way that properly identifies you as an agent in the transaction.
From a practical standpoint, expect your closing appointment to take longer than a regular sale — you’ll need to sign as “Sally Sunshine acting as agent for Jane Doe” instead of just your name.
The power of attorney philosophy: You’re trusted to be loyal
If you’re acting as the agent in a power of attorney setup, you have a fiduciary responsibility to guard the principal’s interest in any transaction. Henderson likes to remind his clients that “The person you’re placing your trust in has the full power to make decisions on your behalf regarding the sale.”
The agent is not required to consult with the principal in any decisions regarding the transaction, so you need to be sure the agent will have your best interests at heart.
And there are some rules: The property cannot be sold to the agent (unless there’s an express agreement to do so) or sold at a price far below market value. These both constitute a breach of fiduciary trust, an abuse of power of attorney duties and, in some instances, a crime.
If you’re looking for more information about the intersection of real estate property and estate planning, our Estate Planning guides on the HomeLight Seller Resource Center offer tips and advice on topics like probate sales, selling a house with multiple owners, and how to sell a house you’ve inherited.
Header Image Source: (Cosmic Timetraveler / Unsplash)
Disclaimer: Information in this blog post is meant to be used as a helpful guide, not legal advice. If you need legal help setting up a POA arrangement for selling property, please consult a skilled lawyer in your area.