The Role of Power of Attorney in Real Estate Transactions

Updated on December 24, 2024

What is a Power of Attorney in Real Estate Transactions?

In real estate transactions, a Power of Attorney is a legal instrument that grants one individual, the “attorney-in-fact” or “agent,” the authority to act on behalf of another person, known as the “principal.” This tool is particularly valuable when the principal cannot be physically present or is otherwise unable to execute the necessary documents. In California, the use of a POA in real estate transactions is subject to specific rules to ensure the process is legally binding and transparent. Let’s explore when a POA might be used, how the process works, and its implications for buyers, sellers, and escrow companies.

When is a Power of Attorney Used?

A Power of Attorney is often utilized in scenarios where the principal cannot manage their real estate affairs directly. For instance, a principal might be out of state or abroad during a transaction, making it impossible for them to sign the necessary documents in person. Health issues can also necessitate the use of a POA, particularly when the principal is incapacitated or unable to handle their affairs independently. Other common situations include military deployment, where service members stationed overseas may need to delegate authority, or when business conflicts arise, requiring busy professionals to appoint someone to act on their behalf. In all these cases, the POA document must clearly define the scope of authority granted to the attorney-in-fact, particularly in matters related to real estate transactions such as signing deeds, mortgages, or escrow instructions.

You Decide to Appoint a Power of Attorney – What Next?

The process of using a Power of Attorney in a real estate transaction begins with drafting the POA document. This legal instrument must specify the powers being granted and should be notarized in California to ensure its validity. The principal must carefully select an attorney-in-fact, ideally someone they trust implicitly, as this person will have significant control over the transaction. Once the POA is executed, it must be provided to all relevant parties, including the escrow company, title company, and real estate agents involved. In many cases, the POA must also be recorded with the county recorder’s office where the property is located. The attorney-in-fact then acts on behalf of the principal to complete the transaction, ensuring that all actions fall within the boundaries of the authority granted in the POA.

How a Power of Attorney Helps Real Property Buyers

For buyers, a Power of Attorney is especially useful in situations where they are unable to attend the closing or manage critical aspects of the transaction. The attorney-in-fact can handle tasks such as signing the purchase agreement, mortgage documents, and escrow instructions. They may also liaise with lenders to ensure all financing requirements are met. It is essential that the attorney-in-fact adheres closely to the principal’s instructions, as any missteps could result in financial or legal complications for the buyer.

How a Power of Attorney Helps Real Property Sellers

For sellers, a Power of Attorney can be crucial when they cannot be physically present to sign closing documents or manage the sale. This is particularly common in cases where the seller resides out of state or faces health or emergency issues that prevent direct involvement in the transaction. The attorney-in-fact can take on responsibilities such as negotiating with buyers, signing the grant deed, and managing escrow instructions. Given the significant authority involved, it is critical that the attorney-in-fact strictly follows the principal’s directives to prevent potential disputes or fraud.

The Role of Escrow

In California real estate transactions, the escrow company plays a vital role in ensuring the smooth execution of a transaction involving a Power of Attorney. The escrow company is responsible for verifying the validity and scope of the POA, which includes ensuring that the document is properly notarized and, if necessary, recorded. The title company may also question the POA if the title company, who is insuring the transaction, has concerns about the validity of a signer. Escrow will  also coordinate with all parties involved in the transaction, including the attorney-in-fact, title company, and other stakeholders, to ensure that the process proceeds seamlessly. Additionally, escrow companies serve as a safeguard against fraud by verifying the identity of the attorney-in-fact and checking for any irregularities in the transaction.

How Does California Law Protect the Interests Within Real Estate Transactions?

California imposes strict requirements for the use of a Power of Attorney in real estate to prevent abuse and ensure legal integrity. The POA must be notarized, and in many cases, it needs to be recorded to be effective. There are also distinctions between a limited and general POA, with the former granting specific powers for a single transaction and the latter providing broader authority. For real estate transactions, a limited POA is typically preferred to minimize risks. Furthermore, the principal retains the right to revoke the POA at any time, provided they notify all relevant parties in writing.

Need Legal Assistance With Your Real Estate Transaction?

Real estate transactions involving a Power of Attorney can be complex, requiring careful navigation of legal requirements and procedural safeguards. Whether you are a buyer or seller, having experienced legal counsel can make all the difference. At Schorr Law, based in Los Angeles, we specialize in real estate law and provide tailored solutions for disputes and consultations. If you are considering using a Power of Attorney or have concerns about an ongoing transaction, contact Schorr Law today. Let our expertise guide you through every step of your real estate journey. Call us today at 310-954-1877 or fill out our contact form here.