By Harvey S. Jacobs October 2, 2010

On Oct. 1, the Maryland General and Limited Power of Attorney Act took effect. The changes make it more difficult to delegate a power of attorney, and so this tool can no longer be regarded as a last-minute alternative to attending a real estate closing.

Dubbed “Loretta’s Law,” the measure was partially the result of one family member abusing the power entrusted to her by her elderly aunt.

Loretta was Loretta Soustek, who, in 2001, gave her niece power of attorney over her finances. For five years that niece acted in disregard for her aunt’s best interests and was eventually convicted of a felony theft. This situation only came to light when Loretta’s two great-nieces were appointed guardian for Loretta. When these great-nieces discovered these abuses, they concluded that a system that could allow these abuses to continue for that many years was flawed. They set about to bring change to the system, and Loretta’s Law is the fruit of those labors.

Simply put, a power of attorney is a written document that grants authority to an agent to act in the place of a principal. Powers of attorney are most useful in real estate transactions when one party to a transaction is unable or unwilling to personally attend the closing or previously sign the documents such as deeds, deeds of trust, promissory notes and related documents required to buy, sell or refinance a home. In those situations, a power of attorney is a useful and prudent means of allowing the transaction to occur in a timely manner.

An agent signing on behalf of a principal should sign as “Andy Agent, as attorney-in-fact for Paul Principal.”

Powers of attorney should only be granted to persons whom you trust and who are able and willing to carry out your wishes. Powers of attorney should almost never be granted to strangers or to people with competing business or personal interests or agendas. If in doubt, consult a trusted family member, banker, attorney, certified public accountant or other financial adviser.

All 50 states and the District of Columbia have laws authorizing the use of powers of attorney in real estate transactions. However, the three local jurisdictions vary in their approach. The new Maryland law now requires that a power of attorney document be signed by the principal before a notary public and two witnesses, all of whom must sign in each other’s presence. The notary public may serve as one of the witnesses. This is a change from the prior practice of requiring only that the power of attorney be signed by the principal before a notary public.

Maryland has adopted two statutory forms of power of attorney: A 20-page general personal financial power of attorney and a six-page limited power of attorney. For real estate purposes, the limited power of attorney will suffice. In addition, Maryland has now adopted a statutory agent’s certification that title underwriters are requiring agents to sign, have notarized and record along with the original power of attorney prior to recording any documents they signed as agent. This requires the agent to certify that to his knowledge the principal is alive and that the principal has not revoked the power of attorney or that agent’s authority to act. The new law now imposes a duty on the agent to act loyally, avoid conflicts of interest and keep a record of all receipts, disbursements and transactions made on behalf of the principal, unless otherwise provided for in the power of attorney.

Virginia also recently adopted a version of the Uniform Power of Attorney Act, which went into effect on July 1. Like the Maryland law, this act makes all powers of attorney durable unless otherwise stated. Generally, when used for real property transactions, the power of attorney must be signed, notarized and recorded in the land records office. The Virginia law also imposes specific duties of loyalty, good-faith dealing and record-keeping on agents. An agent’s violation of these duties will subject him to liability for restoring the principal’s property and reimbursement for principal’s attorney’s fees and costs. The District of Columbia only started allowing powers of attorney in 1994. D.C. law requires all powers of attorney in the District to be signed and notarized. While D.C. has no prescribed form, in order to validly convey real property, the D.C. power of attorney must contain specific statutory language at the top of the first page in all bold, capital letters. Original powers of attorney must be recorded in the recorder of deeds office immediately prior to any documents being signed using that power of attorney. A principal may revoke a power of attorney by recording a revocation instrument in the recorder of deeds office referencing the original recording date and instrument number of the power of attorney.

In all jurisdictions, power of attorney documents have become more complex and now create enforceable, legal obligations for both the principal and the agent. Although the power of attorney can no longer be regarded as a last-minute alternative to attending a closing, with careful attention to detail and advance planning, it will continue to be a useful tool for home buyers and sellers.

Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates Attorneys at Law in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Jacobs at (301) 417-4144, or ask@thehouselawy