When is a POA enough for a reverse mortgage transaction?

Reverse mortgage originators are complaining that the federal government is refusing to accept a valid Power of Attorney as sufficient evidence of legal authority to conduct the loan transaction.

“Once a POA is properly executed it is recognized in every arena but reverse mortgages,” says a miffed Dennis Haber, executive vice-president, Agency For Consumer Equity. He contends that, “HUD would rather see a guardianship proceeding commence” than solely rely on a POA. The reason, according to Haber, is that the government agency is “afraid that fraud” will result otherwise.

Meanwhile, another originator notes that “HUD has been so hard on mortgage insurance reviews where a POA is involved that we’ve really had to crack down and assume others have as well.”

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Asked by RMD to comment, a HUD spokesman said he was unaware of any problems with the POA being solely acceptable by the federal department and he provided the 237-word guidelines, which specifically address the issue. The guidelines state, in part, that “a mortgage loan application may be executed on behalf of a borrower by an ‘agent’ or ‘attorney-in-fact’ holding a durable Power of Attorney specifically designed to survive incapacity and avoid the need for court proceedings.”

It further states that “to be valid, a durable Power of Attorney must be prepared when the ‘principal’ is competent to understand the nature and significance of the instrument. The durable Power of Attorney must comply with state laws regarding signatures, Notarization, witnesses, and recordation.”

“That may be what’s in the HUD’s handbook,” Haber responds, “but the practice is very different. The POA does not suggest incompetency of any kind and having one is wise and proper because without it, when someone becomes incapacitated the family is at the mercy of the court. The process,” he adds, “is also time consuming and expensive.”

A popular website that addresses elder issues, pulls no punches on the POA/HUD matter, charging that the agency is “routinely second-guessing the legitimacy of every Power of Attorney document and therefore imposing unnecessary obstacles for, and sometimes turning away, the very people who need a reverse mortgage the most: those frail elders who are unable to care for themselves but wish to remain at home and age in place rather than being forced to sell their homes and move into a long-term care facility.”

Written by Neil Morse

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  • Unless things have been planned to meet reverse mortgage industry outrageous standards, POAs are hammered in this industry. If there is the least question, most lenders opt for the borrower getting a conservatorship.

    Is that discrimination? The author of the article seems to believe it could be.

  • It is customary to have to provide a letter from the physician stating that Mr. or Ms. X is no longer able to manage their affairs as of a certain date. This or a court’s finding of incompetence is the trigger which activates the POA’s rights and responsibilities.

    It is not entirely unexpected for a second written medical certification concurring with the assessment of a person’s inability to manage their affairs to be required by some legal and financial institutions for transactions executed by a POA. The attorney can no longer provide their own certification. So many attroneys advise clients to secure this second piece of supporting evidence to validate the POA.

    What I’d never run into anywhere else except reverse mortgages (including past insurance and securities careers) is the recent demand to furnish similar medical certification that the person was competent at the time that the POA was drafted. That can be a nightmare as you try to figure out who the personal physician was ‘x’ years ago, if in fact there was one. Your serach may reveal that the doctor has sold their practice, has no access to records any more, and may have surrendered their license, or just retired and moved away or passed away.

    Accordingly, I’ve suggesting that people with DPOA documents drawn up obtain this initial medical certification now.

    • Bill,

      That is all well and good. The first question to you is in what capacity are you recommending medical verification of competency upfront? Most originators like me only get involved with POAs after the fact.

      The article profoundly drives home the suggestion that requiring medical verification of competency may in fact be discriminatory as as a condition of getting the loan. I think that this is perhaps the most interesting and valuable part of the related article.

      Most of us who are familiar with the POA issue have been making the planning suggestion for medical verification on competency for some time. Again the problem is most of us are not involved in that initial process or in the stage before there is a finding of incompetency.

    • Many doctors, if you are able to track them down, are unwilling to provide such letters attesting to their patient’s competency at the time the POA was drafted because that sort of judgment is beyond their scope of practice and license. I’ve experienced several doctors refusing to provide this type of letter for fear of various legal consequences.

  • Gee – posturing politicians? Maybe someone can explain why we needed a law to already explain what is in the law> RM proceeds are not income, already covered under the real property law. Deductions for income and taxation of investment dividends are already covered by the IRS.

    • Ed,

      Are you posting to the right blog?

      What does the real property law cover RM proceeds not being income? Real property law is generally state not federal law.

      What are deductions for income?

  • The Cynic, interesting as this was an old comment from a different article (John?)

    What I wanted posted from this article was: POA’s are becoming onerous. That being said and widely acknowledged, why is that we are not expected to participate in the prevention of fraud? Most POA’s are done for the right reasons, however our documentation issues are a bit more stringent from the lenders. There are many times when a POA is being utilized by a child or relative and we should not just accept that at face value. It would be nice to make the transaction smoother, but if we are taking precautions, let’s take all of them.

    In answer to your questions posed above though (Cynic) NY State Real Property law specifically exempts the proceeds from a reverse mortgage as being income. Deductions for/from income for the purposes of taxation are defined by the IRS, ie. mortgage interest expense is a deduction WHEN it is paid, up to certain limitations. – Ed

    • Ed,

      While it is great that NY State law clarifies the issue about debt proceeds, it is only applicable to New York state law. There is a reason why NY felt it had to enact that law.

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