One of my business law professors often started the class with an anecdote that had nothing to do with anything on our syllabus. One morning he entered the class and told of the frustrations he had in trying to execute a deed on behalf of his wife who was out of the country and for whom he held a perfectly drafted and executed power of attorney. Alas, the title company refused to accept the deed.
I have had issues of power of attorney pop up in three different contexts of my practice recently. First, two underwriters refused to insure title to a property because the vesting deed was a transfer on death deed (ugh, see my prior comments about the dreaded transfer on death deed) executed by a power of attorney. Although there is no statutory prohibition with respect to the validity of such a transfer, initially, neither underwriter would insure title. One underwriter was swayed by the fact that the deceased’s will provided the same disposition for the property as the deed (although with the hassle of probate), the other underwriter was unmoved.
Second, it is common for commercial leases to provide that if a tenant refuses to execute a tenant estoppel or a subordination agreement, then the landlord has a power of attorney to execute the documents on behalf of the tenant. When I represent tenants, I regularly strike this language. However, practically speaking, lenders will not accept documents executed by a power of attorney. With respect to estoppel certificates, the lenders already have the information from the lender—they want to hear directly from the tenant. With respect to the subordination, using a power of attorney leaves open too many openings for the tenant to push through in the event the subordination becomes an issue in the future. For example, a judge may find that the power of attorney should have been recorded when given or may refuse to enforce certain provisions for equitable reasons which the judge may have been more likely to enforce had the tenant been the party executing the subordination directly.
Third, in representing a lender in enforcing its rights under loan documents prepared by another firm, I came across a provision granting the lender the right to execute certain documents on behalf of the borrower to further evidence the loan, including documents which would secure additional collateral. This provision seemed like a gold-mine—but not so fast. Chapter 1337 of the Ohio Revised Code governs powers of attorney in the state of Ohio. Powers of attorney must be notarized. Those conveying real property must also be recorded. Section 1337.18 provides a form that may be used to grant a power of attorney.
So why are title insurance underwriters and lenders rejecting properly drafted, executed and recorded powers of attorney? In the case of underwriters, it is a matter of the amount of risk that they are willing to assume. When I was able to show one of the underwriters that transferring the property through probate would lead to the same result weeks or months later, they were willing to insure the property.
In the case of landlords executing documents on behalf of tenants, lenders are unwilling to assume the risk that there is an unknown default under the lease or that the power of attorney will be unenforceable. Empower your power of attorney by carefully complying with the Ohio Revised Code and making sure that you can record your power of attorney when the time comes to use the granted powers.