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When someone isn’t in a position to make decisions for themselves, who can do it for them? That’s the question a power of attorney answers.
It’s a vitally important document that can ensure someone’s wishes and best interests are represented, while taking the burden off of that person. That power takes tremendous trust, and sadly it’s open to tremendous abuse.
Power of attorney can be used as a vehicle for title fraud, which can cost clients tens or even hundreds of thousands. With fraud on the rise in Canada, spotting and stopping power of attorney abuse has never been more important.
What is power of attorney?
Power of attorney is a document authorizing one or more people (the “attorney(s)”) to act on behalf of another (the “donor”) in financial or legal matters. The power of attorney document may limit what decisions the attorney can make for the donor, or allow broad discretion.
Power of attorney usually ends if the donor revokes it, dies, or loses their decision-making capacity. Enduring (or continuing, in Ontario) power of attorney is an exception. If the donor signs an enduring or continuing power of attorney, their attorney can act on their behalf, even if the donor becomes incapacitated. This is an important tool for donors who expect to lose their capacity, such as someone suffering from Alzheimer’s.
How can a power of attorney be abused?
Being an attorney is an enormous responsibility, since it can often grant full control over the donor’s assets. Abuse of a power of attorney can begin even before the papers are signed. A bad actor can forge the donor’s signature or coerce them into signing an enduring/continuing power of attorney. If the donor becomes incapacitated, they may not be in a position to revoke it. Even if an attorney takes on the responsibility of being an attorney in good faith, that doesn’t mean they won’t later abuse it to enrich themselves, or control the donor.
How can you spot power of attorney fraud?
Here are some things to consider when a power of attorney is being used in a real estate transaction:
- If you didn’t prepare the document yourself, question who did and what it’s being used for. Where is the donor, and can you contact him/her to get instructions directly?
- Examine the document closely. Are there restrictions? Has it been executed and witnessed properly? Is the attorney using the power in the appropriate way?
- Are you examining an original or certified true copy of the document to ensure it has not been altered?
- If the registered owner is a corporate owner, was the power of attorney given by the corporation or an officer? An officer cannot delegate the duties of a corporation by way of power of attorney. It must be given by the corporation.
- Are the decisions being made solely for the benefit of the donor or is the attorney or another individual benefitting? If the donor is not benefitting, could the power of attorney use be construed as a breach of fiduciary duty?
When using a power of attorney in a mortgage transaction, always make sure that the lender will allow its use. It’s also important to disclose that a party is under power of attorney, when it’s time to order title insurance on the transaction. This can help you avoid delays that can happen if the power of attorney itself, or the way it’s being used, doesn’t meet your insurer’s requirements.
Do you have any questions about closing with a power of attorney document? Share them in the comments section!
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Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
