New Texas Statutory Power of Attorney & Limitations on Use. Paul McNutt, Jr. Executive Vice President General Counsel

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1 New Texas Statutory Power of Attorney & Limitations on Use Paul McNutt, Jr. Executive Vice President General Counsel

2 Powers of Attorney - Basics A power of attorney is a written instrument whereby one person, the principal, appoints another person to be his or her agent or attorney-in-fact for some particular purpose, and further provides for the agents powers and duties. The general rule is that the authority of the agent may never be extended by mere construction beyond that which is expressly stated or which is necessary and proper to carry out the authority given. Reese vs. Medlock, 27 Tex. 120, 123 (1863), Gouldy v. Metcalf, S.W. 830, 831 (Tex. 1889). 2 Powers of Attorney - Basics There are 3 basic types of Powers of Attorney General Gives general authority, and is often too vague for Title Company purposes. Special Authorized very narrow authority to do a specific act. Sometimes called a specific power of attorney. It must give the exact description of the act. Durable Specifically states that it is not effected by the principal s subsequent disability or incapacity. What we Prefer is a Specific Durable Power of Attorney. 3

3 Powers of Attorney New Statutory Durable Power of Attorney Form Effective 1/1/2014, a revised Statutory Durable Power of Attorney form, is set forth in Section of the newly created Texas Estate Code. Use of the statutory form, with language referencing the statute, expands the authority of the power of attorney to include the expanded descriptions of authority set forth in Chapter 752 of the Estate Code. 4 Power of Attorney-New Statutory Power of Attorney Form Effective 1/1/2014. The principal change by this new form is it requires initialing the sections chosen to be used in order to be effective. Section (N) if initialed provides for all of (A) through (M) to be effective, therefore not requiring initialing the individual sections above. This new form is the only form of Statutory Power of Attorney in Texas, effective 1/1/

4 Power of Attorney-Former Statutory Power of Attorneys being offered. As any Statutory Power of Attorney previously executed can still be used, if still effective, you should be careful to review the date of the POA, and accept the former form of Statutory POA only if executed before 1/1/2014. As the Probate Code was changed over to an Estate Code 1/1/2014, references to the Probate Code in the heading must be only on POA s executed before 1/1/ Power of Attorney-New Statutory Power of Attorney Form Effective 1/1/2014. Initialing is the most prominent new requirement of the new Statutory Durable POA form. Other new features include pages describing the agents duties and liability to the principal. If asked to use the new form, care must be taken that all parts of the form are included, and nothing is changed or altered unless by an attorney or the party. 7

5 Powers of Attorney When You Cannot Use Them Death of the principal If Terminated or Revoked - Expired under its terms. Be sure to see if it has a fixed term and that the date is not past. Actual revocation by the principal If the Spouse is the agent, by divorce or annulment of the marriage. Appointment of a Guardian or Temporary Guardian by a court. 13 Powers of Attorney When You Cannot Use Them Self Dealing by the Agent When the Agent: Deals with the Principal s property for his own benefit. Conveys the Principal s property to themselves. Releases a mortgage made by the agent in favor of the principal. 14

6 Powers of Attorney When You Cannot Use Them Self Dealing by the Agent When the Agent - Executes a gift deed, unless specifically allowed by the POA. Executes a mortgage for the principal or releases a mortgage owned by the principal without consideration. Mortgages Principal s property to him or herself. Delegates agent s authority to someone else, unless specifically allowed by the POA. 15 Powers of Attorney When You Cannot Use Them When the Principal is a Fiduciary without Authority to Delegate An Independent Administrator or Executor of an estate cannot delegate authority through a POA. A guardian of a person or estate may not give a POA for a person to act for them. The Court can appoint a new guardian. A trustee of a trust cannot delegate authority unless the trust agreement we review specifically authorizes the trustee to do so. A successor trustee can act instead as authorized in the trust. 16

7 Powers of Attorney Oral Ratification In order to avoid fraud, and insure that the principal is alive on the day of closing, we typically require our closers to confirm via telephone that the principal is both alive and is aware of the transaction the POA is being used on the day of closing. Your principal can expect a call the day of closing. We try to ratify via for soldiers who are overseas in a combat zone, as close to the closing time as possible. 18 Powers of Attorney Military Powers of Attorney Military POA is executed under federal law and says they can be notarized by a JAG Notary. In order to accept a JAG notary, the person must either be enlisted in the military or be able to prove they are a bona fide contractor for the military, employed outside the United States or its territories. Texas has a specific law allowing ANY commissioned officer of superior rank to notarize if the principal is enlisted, without a notary seal of any type. We typically require a military or dependent ID to validate this type of notary. 19

8 Powers of Attorney Use for Home Equity Loans Restricted Home Equity Loans - The Texas Constitution provides the loan must be closed in a title company, attorney s office or lender s office. In a decision issued by the Supreme Court, ACORN:Finance Comm n of Tex. v. Norwood, it was held the POA must have been executed at the same location required for the loan itself. Therefore, we are limited in use of POA on Home Equity loans by this decision, and by our TDI Procedural Rules for Endorsement T-42 and T POA- Home Equity Loans T-42 Endorsement Restrictions Home Equity Loans require we issue a T-42 endorsement. However subparagraph (f) cannot be given unless the loan is closed at the office of the title company, per P-44 C. Therefore to use a POA for an HEL, we must require the execution of the POA to be done at the office of the title company. This is required because of the Texas Supreme Court decision in Acorn above. 21

9 POA Home Equity Loans T-42.1 Endorsement Restrictions If we cannot issue with T-42 (f) we must eliminate all of T-42.1 sub-pargraphs (a)-(h) and (l) in order to insure. This requires the lender change their closing instructions to allow the limited T-42 and the elimination of the sections of T Any POA must be executed at the office of the lender or the title company and we must obtain proof of the place of execution. 22 POA-Home Equity Loans Restricted Use of Military POAs, executed elsewhere, or Durable POAs executed long before the current transaction, is eliminated by the Supreme Court decision. We must have a specific POA for the current transaction, executed at our office to insure with all sections of T-42. If the lender closes their own deal, and agrees to eliminate T-42 (f), you can insure, but only if the POA is executed at the lenders office. 23

10 POA for Mechanics Lien Contracts on Homestead Property The Texas Constitution requires for the execution of a Mechanics Lien Contract by owners on their homestead the Contract must be executed at the office of a title company, an attorney s office, or the lender. We therefore must require that any POA must therefore also be executed at the same location, and we must have evidence of the place of execution to insure the loan. 24 POA for Reverse Mortgage-Limitations The Texas Department of Insurance Procedural Rules only allow under T-43 endorsement section (ii)-(iv) to be given if the closing takes place in the office of the title company. This is set out in P-45 E. Therefore, if a POA is used for a reverse mortgage we require that the POA must have also been executed at the office of the title company, and must be specific to the deal. 25

11 26 Powers of Attorney Specific Problems No Original Power of Attorney No closing, as no presumption exists that a person has given anyone authority to convey. It is a requirement that the Power of Attorney be filed in the Real Property Records of the County of the land, with the sale or loan instruments. Once filed of record, a certified copy is considered the same as an original for all legal purposes. 27

12 Powers of Attorney Specific Problems Improper Acknowledgment Expired Notary Stamp Notary signs in the principal s place. Military officer notarizes without stamp and fails to designate location or rank. JAG Notary stamps a civilian POA and does not designate location. 28 Powers of Attorney Specific Problems Lack of a Heading on a Statutory Power of Attorney Unless the Statutory Power of Attorney contains the heading that references the Texas Power of Attorney Act, it does not incorporate the language in the act, therefore none of the terms are defined. This applies to both the new Estate Code Statutory Durable POA, and the former Statutory POA under the Probate Code. 29

13 Powers of Attorney Specific Problems-Initials From 1993 to 1997, the Texas statutory power of attorney form needed each category of authority initialed. We still see this form floating around, and often people do not initial the correct parts of it, making it void. If you have blanks next to the individual sections, make sure the right ones were initialed. The Statutory Durable POA form adopted in 1997 provides that the agent has the authority unless a provision is marked out, so we rarely have issues with the form. Now the new Statutory Durable POA, effective 1/1/2014, requires again the use of initials, and will be void unless initialed. Care in review must be made, for initials in the correct paragraphs for your transaction. 30 Powers of Attorney-Specific Problems Provision for Only Effective if Disabled The new Statutory Power of Attorney, as well as the former form, had a place to select whether the POA was effective immediately, or would only be effective if the party later became disabled. We do not insure based on any future disability POA, and require legal action be taken for a guardian to be appointed instead. 31

14 STATUTORY DURABLE POWER OF ATTORNEY NOTICE: THE POWERS GRANTED BY THIS DOCUMENT ARE BROAD AND SWEEPING. THEY ARE EXPLAINED IN THE DURABLE POWER OF ATTORNEY ACT, SUBTITLE P, TITLE 2, ESTATES CODE. IF YOU HAVE ANY QUESTIONS ABOUT THESE POWERS, OBTAIN COMPETENT LEGAL ADVICE. THIS DOCUMENT DOES NOT AUTHORIZE ANYONE TO MAKE MEDICAL AND OTHER HEALTH-CARE DECISIONS FOR YOU. YOU MAY REVOKE THIS POWER OF ATTORNEY IF YOU LATER WISH TO DO SO. You should select someone you trust to serve as your agent (attorney in fact). Unless you specify otherwise, generally the agent's (attorney in fact's) authority will continue until: (1) you die or revoke the power of attorney; (2) your agent (attorney in fact) resigns or is unable to act for you; or (3) a guardian is appointed for your estate. I, (insert your name and address), appoint (insert the name and address of the person appointed) as my agent (attorney in fact) to act for me in any lawful way with respect to all of the following powers that I have initialed below. TO GRANT ALL OF THE FOLLOWING POWERS, INITIAL THE LINE IN FRONT OF (N) AND IGNORE THE LINES IN FRONT OF THE OTHER POWERS LISTED IN (A) THROUGH (M). TO GRANT A POWER, YOU MUST INITIAL THE LINE IN FRONT OF THE POWER YOU ARE GRANTING. TO WITHHOLD A POWER, DO NOT INITIAL THE LINE IN FRONT OF THE POWER. YOU MAY, BUT DO NOT NEED TO, CROSS OUT EACH POWER WITHHELD. (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) (N) Real property transactions; Tangible personal property transactions; Stock and bond transactions; Commodity and option transactions; Banking and other financial institution transactions; Business operating transactions; Insurance and annuity transactions; Estate, trust, and other beneficiary transactions; Claims and litigation; Personal and family maintenance; Benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service; Retirement plan transactions; Tax matters; ALL OF THE POWERS LISTED IN (A) THROUGH (M). YOU DO NOT HAVE TO INITIAL THE LINE IN FRONT OF ANY OTHER POWER IF YOU INITIAL LINE (N).

15 SPECIAL INSTRUCTIONS: Special instructions applicable to gifts (initial in front of the following sentence to have it apply): I grant my agent (attorney in fact) the power to apply my property to make gifts outright to or for the benefit of a person, including by the exercise of a presently exercisable general power of appointment held by me, except that the amount of a gift to an individual may not exceed the amount of annual exclusions allowed from the federal gift tax for the calendar year of the gift. ON THE FOLLOWING LINES YOU MAY GIVE SPECIAL INSTRUCTIONS LIMITING OR EXTENDING THE POWERS GRANTED TO YOUR AGENT. UNLESS YOU DIRECT OTHERWISE ABOVE, THIS POWER OF ATTORNEY IS EFFECTIVE IMMEDIATELY AND WILL CONTINUE UNTIL IT IS REVOKED. CHOOSE ONE OF THE FOLLOWING ALTERNATIVES BY CROSSING OUT THE ALTERNATIVE NOT CHOSEN: (A) (B) This power of attorney is not affected by my subsequent disability or incapacity. This power of attorney becomes effective upon my disability or incapacity. YOU SHOULD CHOOSE ALTERNATIVE (A) IF THIS POWER OF ATTORNEY IS TO BECOME EFFECTIVE ON THE DATE IT IS EXECUTED. IF NEITHER (A) NOR (B) IS CROSSED OUT, IT WILL BE ASSUMED THAT YOU CHOSE ALTERNATIVE (A). If Alternative (B) is chosen and a definition of my disability or incapacity is not contained in this power of attorney, I shall be considered disabled or incapacitated for purposes of this power of attorney if a physician certifies in writing at a date later than the date this power of attorney is executed that, based on the physician's medical examination of me, I am mentally incapable of managing my financial affairs. I authorize the physician who examines me for this purpose to disclose my physical or mental condition to another person for purposes of this power of attorney. A third party who accepts this power of attorney is fully protected from any action taken under this power of attorney that is based on the determination made by a physician of my disability or incapacity. Statutory Durable Power of Attorney Page 2

16 I agree that any third party who receives a copy of this document may act under it. Revocation of the durable power of attorney is not effective as to a third party until the third party receives actual notice of the revocation. I agree to indemnify the third party for any claims that arise against the third party because of reliance on this power of attorney. If any agent named by me dies, becomes legally disabled, resigns, or refuses to act, I name the following (each to act alone and successively, in the order named) as successor(s) to that agent:. Signed this day of, (your signature) State of County of This document was acknowledged before me on (date) by (name of principal). (signature of notarial officer) (Seal, if any, of notary) (printed name) My commission expires: Statutory Durable Power of Attorney Page 3

17 Agent's Duties IMPORTANT INFORMATION FOR AGENT (ATTORNEY IN FACT) When you accept the authority granted under this power of attorney, you establish a "fiduciary" relationship with the principal. This is a special legal relationship that imposes on you legal duties that continue until you resign or the power of attorney is terminated or revoked by the principal or by operation of law. A fiduciary duty generally includes the duty to: (1) act in good faith; (2) do nothing beyond the authority granted in this power of attorney; (3) act loyally for the principal's benefit; (4) avoid conflicts that would impair your ability to act in the principal's best interest; and (5) disclose your identity as an agent or attorney in fact when you act for the principal by writing or printing the name of the principal and signing your own name as "agent" or "attorney in fact" in the following manner: (Principal's Name) by (Your Signature) as Agent (or as Attorney in Fact) In addition, the Durable Power of Attorney Act (Subtitle P, Title 2, Estates Code) requires you to: (1) maintain records of each action taken or decision made on behalf of the principal; (2) maintain all records until delivered to the principal, released by the principal, or discharged by a court; and (3) if requested by the principal, provide an accounting to the principal that, unless otherwise directed by the principal or otherwise provided in the Special Instructions, must include: (A) the property belonging to the principal that has come to your knowledge or into your possession; (B) each action taken or decision made by you as agent or attorney in fact; (C) a complete account of receipts, disbursements, and other actions of you as agent or attorney in fact that includes the source and nature of each receipt, disbursement, or action, with receipts of principal and income shown separately; (D) a listing of all property over which you have exercised control that includes an adequate description of each asset and the asset's current value, if known to you; (E) the cash balance on hand and the name and location of the depository at which the cash balance is kept; (F) each known liability; (G) any other information and facts known to you as necessary for a full and definite understanding of the exact condition of the property belonging to the principal; and (H) all documentation regarding the principal's property. Statutory Durable Power of Attorney Page 4

18 Termination of Agent's Authority You must stop acting on behalf of the principal if you learn of any event that terminates this power of attorney or your authority under this power of attorney. An event that terminates this power of attorney or your authority to act under this power of attorney includes: (1) the principal's death; (2) the principal's revocation of this power of attorney or your authority; (3) the occurrence of a termination event stated in this power of attorney; (4) if you are married to the principal, the dissolution of your marriage by court decree of divorce or annulment; (5) the appointment and qualification of a permanent guardian of the principal's estate; or (6) if ordered by a court, the suspension of this power of attorney on the appointment and qualification of a temporary guardian until the date the term of the temporary guardian expires. Liability of Agent The authority granted to you under this power of attorney is specified in the Durable Power of Attorney Act (Subtitle P, Title 2, Estates Code). If you violate the Durable Power of Attorney Act or act beyond the authority granted, you may be liable for any damages caused by the violation or subject to prosecution for misapplication of property by a fiduciary under Chapter 32 of the Texas Penal Code. THE ATTORNEY IN FACT OR AGENT, BY ACCEPTING OR ACTING UNDER THE APPOINTMENT, ASSUMES THE FIDUCIARY AND OTHER LEGAL RESPONSIBILITIES OF AN AGENT. Statutory Durable Power of Attorney Page 5