Who’s Loretta and Why do I Care?
By:Â Jeffrey Shiller, Esq.
I knew yesterday was going to suck.Â Any day where I have to sit down for hours and type, format, review, cut and paste a new legal form from scratch, it sucks.
On Oct. 1, 2010, Maryland enacted a new law â dubbed âLorettaâs Lawâ – which drastically affects the use of Powers of Attorney.Â As a result, my old POA form became obsolete.Â So first thing in the morning I fired up the Keurig coffee maker (I love the whirring sound it makes), roasted up some Caribou Morning Blend, and set to work creating a new POA.
But Marylandâs not the only State with POA laws, and itâs important we all know how these laws impact our investor lifestyleâ¦
In case youâre interested, hereâs a brief history of the new law:
Principal (thatâ the person granting the POA) named Loretta grants POA to her niece.
Acting under her âauthorityâ as POA, niece steals $450,000.00 over a several year period.
Eventually, great-nieces of Loretta discover the theft and ask themselves, âSelves, how could a legal system allow this to happen?â
Great-nieces then lobby the system for change and win.Â Result?Â âLorettaâs Law.â
The new law generally sets out to: 1) make it more difficult to delegate a POA; 2) clarify the duties and accountability of the agent; and 3) make POA documents more uniform.Â As an investor, itâs important for you to understand key aspects of the new law no matter where youâre investing, as many states have similar laws.
New Forms:Â There are 2 new statutory forms to use â a long one, 20 pages, with tons of powers on it – and a short âlimitedâ one with fewer powers enumerated.Â The limited one will suffice for real estate transactions.Â Many states have their own version of these prescribed forms. Â And, unlike the old law, the new statute requires both a notary AND two witnesses (the notary can be one).
Many State legislatures are catching up to the problem of ânon-uniformâ POAs.Â Everyone must use the new forms and, if someone refuses to recognize the POA, that person could be liable for attorney fees and costs.Â So, if youâre going to use a POA in the future, donât assume your old oneâs going to work.Â Â And youâre going to have to make sure your Sellersâ POAs are in proper form and properly executed, or you may not get to settlement!
New Agent Duties:Â Be on notice â if youâre going to be an agent for someone, you have a duty of loyalty, good-faith dealing and proper record-keeping.Â And when performing certain agent duties, you will also be required to sign an affidavit certifying that the principal is alive and has not revoked the power of attorney or your authority to act.
A violation of these duties could subject you to liability for restoring the principal’s property and reimbursement of attorney’s fees and costs.Â So before you decide to act as an agent for a seller, or anyone else, ask yourself, âAm I looking out for the best interest of the other person or me?âÂ If itâs you, DONâT DO IT!Â Find someone else to act as agent.
In all jurisdictions, power of attorney documents are becoming both more uniform and complex at the same time.Â If you are getting involved in a real estate transaction involving a POA, make sure you understand how to properly create one, the legal obligations for both the principal and the agent, and whether one can be used given the circumstances.
In a future post, I will address some more common questions about POAâs, such as: When do I need an original? How do I sign a POA as agent? When are POAs not allowed? Whatâs the difference between a POA and guardianship?Â What is a durable POA?
By the way, I got the new forms done by lunch J
Notice: This information is not legal advice and should not be acted upon without consulting your own attorney.