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