Power of Attorney In Reverse Mortgages: Document Due Diligence, or Overkill?

In working with the senior population, specific attention to the needs of borrowers who may require the assistance of family members or powers of attorney in making the decision to take a reverse mortgage loan is not something lenders take lightly. Many have specific protocols when it comes to borrowers who may not be in the position to make the decision on their own, and some say the process has become even more stringent in recent years.

The onus is on the lender when a borrower’s understanding of the loan is concerned, regardless of a counseling certificate. Following a New York Supreme Court ruling in early 2010, it became clear that the “mortgagee is entrusted with the responsibility of conducting an inquiry of the applicant’s understanding of the mortgage agreement.”

Usually, if there is an issue with competence on the borrower’s part, it has already been identified by the time the borrower reaches the counseling session, explains Daniel Fenton, housing director for counseling agency Money Management International.

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“I think [the Department of Housing and Urban Development] has steered very well away from counseling agencies makeing the determination,” he says. “Counselors should be conscious of problems of comprehension and should be alerted.”

If problems with comprehension are not identified in the counseling session, then they must be outlined earlier in the process. It presents a large responsibility on the originators’ part, and when a power of attorney comes into play, lenders are asking for backup documentation, which often includes two doctors’ notes.

“In our experience,” says Fenton, “the people who are coming to us are adquately prepared. If they’re not, they’re usually able to understand those concepts that hud has identified as important.” Commonly, Fenton says, when a power of attorney is in place, it’s more proactively involved.

“Power of attorney can happen early in the process,” says Ernie Castro, reverse mortgage sales manager at MetLife Bank. “If there’s going to be a power of attorney used, we have to collect that documentation at signing. We need a doctor’s letter that says the borrower is competent. if we have that, fine. If there’s an issue, we’d have to refer to the dates that the power of attorney is executed.” Castro says that in cases where the power of attorney has long been signed, the lender requires a note from an attending doctor that says the borrower was competent at the time the Power of Attorney was signed.

“A doctor’s letter is the key factor,” says John Mitchell, owner of Reverse Mortgage USA. “The critical issue is: was a person competent when they signed the power of attorney. Their competency today is irrelevant. That’s why our practice was to just get one doctor to acknowledge that.”

Lawsuit fears were not generally cited from sources RMD spoke with, but some speculate those fears may be the reason for heightened attention to powers of attorney documentation. And while the precautions and backup documentation may help protect lenders, ultimately, says one elder law attorney, the extra documentation can present an unnecessary burden on the process and on the borrower.

“They are assuming that every power of attorney is fraudulent,” says elder law attorney Evan Farr. “[Lenders] are worried that the child who is using the Power of Attorney to help Mom obtain the reverse mortgage is really trying to steal Mom’s money.”

It can add time and effort to the process as well, in cases where a power of attorney was signed years before the reverse mortgage application and in particular cases where a doctor or backup documentation can’t be found.

“It could be weeks, months. It could be impossible,” says Farr. “Say the power of attorney is 10 years old. The doctor could have gone out of business or could have moved twice.”

Farr says that because reverse mortgage borrowers are seniors who are more likely to have powers of attorney, he sees the additional documentation as age discrimination. His office is required and certified to make an assessment of competence as part of the power of attorney process, and yet, he says, lenders won’t accept documentation from him. Rather, they require the doctor’s note.

“They assume that anyone acting on behalf of a reverse mortgage borrower is acting on behalf of malice,” he says. “Lately, I don’t recommend [reverse mortgages] as much as i used to].”

The incidence of powers of sttorney, however, may be on the decline as lenders see the average age of borrowers taking a downward turn.

“The volume of reverse mortgages is increasing, so by the mere fact we’re doing these, you’ll see more powers of attorney in play,” says Castro. But the percentage of POAs is probably going down a little bit because we have a new market for younger, more sophisticated borrowers.”

Written by Elizabeth Ecker

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  • Perhaps Mr. Castro is seeing an increase in reverse mortgage activity at his firm but the industry is and has not.  Who really cares what the opinion of Mr. Farr is?  He is not taking any risk.  He has no privy with the lender and is merely advocating what he perceives to be the best interests of his client.  This is not age discrimination as long as all seniors who are being approved for reverse mortgages and have powers of attorney are being treated the same and the requirement is not overly excessive.  This is not approval of a $300 check at the store.
     
    If the POA is ten years old, then why not just get a new one?  After all competence is not a medical determination alone but rather a legal one based on medical and other evidence.
     
    A lender must be cautious.  While it would be terrible for a HECM endorsement to be found void or voidable, it would be much worse for the mortgage itself to be considered void or voidable.  Lenders must have leeway to determine how it will decide these matters.
     
    Those looking at the power of attorneys will rarely know why the lender rules are in place.  If one wants to find out why policy was made, they need to ask the policymakers.

    • Regarding obtaining a new POA if it is old, the problem is that the lender won’t allow a POA to be used for cognitive reasons unless the borrower has been deemed mentally incompetent by a doctor, and a new POA is void because of that incompetence.

      • Lance,Thank you for waking me up.  You are right.  I have edited it and it is now with Admin for posting.  I do not mind being shown where I am wrong in a comment.  I appreciate you pointing it out.Zorro (per Lance Jackson, but aka The_Critic)

  • Do any lenders video their closings? I am just wondering about the cost because it sure would resolve a lot of problems as the borrower age and the family members say their parent(s) were not competent at the time the loan was closed.

  • Do any lenders video their closings? I am just wondering about the cost because it sure would resolve a lot of problems as the borrower age and the family members say their parent(s) were not competent at the time the loan was closed.

    • reversemaniac,

      You are right as to competency at signing but a closing video would add nothing to the issue of competency at the signing of the POA unless the borrower was competent at closing.  Unless the borrower was physically incapable of signing loan documents, it is hard to understand how that comes into play with a POA.

      We did have a borrower who had had a stroke and was only capable of signing a limited number of documents in a day so the POA signed the rest.

  • It appears that lenders may have recently increased their documentation requirements for the use of POAs, based on our recent experience. 

    In the past, we were usually only required to obtain a doctor’s letter regarding competence at the time of POA execution if the POA was recently executed (timeframe based on the underwriter’s or an attorney’s judgement I think).   For example, we usually didn’t need one if the POA was over 5 years old or so (not a hard and fast rule). 

    We currently have an underwriting condition for 2 doctors’ letters on a POA that is over 6 years old, and there is only 1 doctor available that was familiar with the client at that time.

    I understand the logic for requiring a doctor’s letter regarding competence at the time of POA execution, but at some point it seems a bit excessive and it can certainly be a burdon on the applicant and family members.   

    • Lance,

      Proving competence at the time a POA was signed should be of no relevance unless the law has grandfathering provisions.  Any other reason for treating a POA dated ten years ago versus one dated six months ago differently as to proof of competency at signing seems at best discriminatory.

  • Lance,

    Thank you for waking me up.  You are right.  I have edited it and it is now with Admin for posting.  I do not mind being shown where I am wrong in a comment.  I appreciate you pointing it out.

    Zorro (per Lance Jackson, but aka The_Critic)

  • Lance,

    I really do not believe the date of the POA is relevant to providing documents proving the validity of the POA.  Whether the POA is ten years or two years old, the standard of documenting validity should be no different.  If it is, it would seem one could find illegal discrimination.

  • The Estate Planning & Eldercare attorneys I have talked to have been shocked to find out that reverse mortgage lenders are requiring 1) a Doctor’s letter as proof of competency at the time POA documents are created and signed, and 2) two Doctor’s letters documenting diminished capacity to activate the POA later.

    What MD wants to write a letter today stating that the person they were seeing 10 years ago for something else like arthritis was mentally competent back then when they signed the POA? If the borrower is mentally incompetent now, somebody else has to know who that doctor was so you can find them. What if the MD has died, retired or sold their practice? What second MD wants to write a letter certifying incapacity for a patient for whom they have no baseline knowledge and who they have just recently met due to the second letter requirement? If you can’t find or get the incompetency letter from the personal physician, you have two MDs unfamiliar with the borrower/patient now.

    You can get into some of these same issues even if you are using a POA for a borrower who is physically unable to sign but is mentally competent.

    Reverse mortgage lenders/their investors/HUD are out there all alone in requiring these forms of validation that are not required for other legal, insurance or securities transactions with POAs.

    • Bill,
       
      Verifying the validity of a POA seems prudent as does validating the incompetence of the borrower.  Who else is really qualified in the eyes of the courts to conclude on such matters other than physicians?  While it is true that the technical definition of competency is a legal matter, it is also true that in litigation the opinion of a doctor is generally considered to be the opinion of an expert on the matter of competency.
       
      The cost of one contested POA exceeds the profits on the loan to the bank.  The financial cost of having a HECM declared void or voidable is far worse.
       
      It would be helpful if you, Lance, or the elder law attorneys could come up with a more palatable but equally prudent alternative.  Simply relying on the alleged date of a signature is shaky at best and could easily lead to claims of discrimination.  While it is one thing to hear elder law attorneys are upset because someone is threatening the long held beliefs of their profession, it would be quite another to hear that those who prosecute senior financial abuse to side with them.

  • I just came upon this thread while looking for something else.
    Years ago, as the issue of competence and POAs in the lending arena began to surface, I began urging the attorneys with whom I work to add a step to their POA procedure. That step is simply having their client get a letter from their physician attesting to their competency AT THE TIME THE POA IS EXECUTED and keeping that letter with the POA document.
    This doesn’t solve the problem for those POAs already signed, but it does for those from this point forward.
    Given the increasing “moral decay” and litigiousness that is evident in our society, I don’t see lenders backing down from these efforts to protect their borrowers and themselves.

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