I have the Durable Power of Attorney for my parents, who are age 83 and 73. They own their home. I am considering applying for a Reverse Mortgage for them. What do I need to do?
This is a great question, and you picked a perfect time to ask it. It is much better to find out what you need to do with a Power of Attorney (POA) before you get started than to figure it out as you go along.
HUD has some guidelines for using a POA; knowing them in advance is extremely helpful. Firstly, let me print the HUD requirements on the use of a POA straight from their manual:
POWER OF ATTORNEY GUIDELINES
- Borrowers with legal competency:
- All borrowers must sign the mortgage loan application.
- The mortgage loan application may not be executed by power of attorney.
- Borrowers lacking legal competency:
- Only competent borrowers may sign the mortgage loan application.
- Court-appointed conservator or guardian may execute any necessary documents, including the mortgage loan application. The lender must provide evidence that the conservator or guardian has the authority to obligate the borrower.
- An “agent” or “attorney in fact,” holding a durable power of attorney specifically designed to survive incapacity and avoid the need for court proceedings, incapacity and avoid the need for court proceedings, may execute any necessary documents, including the mortgage loan application.
- (1) 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.
- (2) The durable power of attorney must comply with state laws regarding signatures, notarization, witnesses, and redecoration.
- Closing Documents – Power of attorney (durable or otherwise) may be used for closing documents. Any power of attorney must comply with State law and allow the Note to be legally enforced in that jurisdiction.
- Counseling Session For borrowers lacking legal competency, the counseling session may be conducted with an “agent” or “attorney in fact” holding a power of attorney or with a court-appointed conservator or guardian.
I put those guidelines there because it is important to note that there is a distinction between borrowers who lack legal competency and those who do not.
If the borrowers use a power of attorney for convenience (they do not lack competency), they must sign the application for the loan, attend the counseling, and sign the counseling certificate.
If the borrowers are no longer competent, the individual holding the POA may sign for the borrowers. Still, the POA must have been executed when the borrowers were competent.
HUD does not give specifics as to how this must be done, but most lenders agree that the only way to verify competency is to have the borrower’s physician write a letter stating that the borrower is or is not competent to understand the legal transactions.
If incompetent, when was the onset of the illness, the date that the physician states for the onset of the illness that removed the borrower(s)’ competency was after the date of the POA, then the borrower was competent at the time the POA was executed, witnessed and notarized and therefore it would be allowed.
However, if the physician’s date for the onset of the illness is before the date of the POA or the original physician can no longer be contacted (as might be the case with the death or retirement of the physician).
The borrower’s current physician did not receive the borrower’s medical records and therefore cannot write the letter as required to attest that the borrower was of full competency at the time of the signing of the POA, then to complete the reverse mortgage transaction, a court-appointed conservatorship guardianship would be required to complete a reverse mortgage transaction.
We encourage borrowers and families to review their circumstances with their loan originator in advance so that there are clear understandings and the transaction is as smooth as possible.
When handled correctly and all the documentation is available, a reverse mortgage with a POA can be easy enough for one without.
You need to know in advance what will be required and whether or not that information is readily available or be prepared for the alternatives.
Can a Power of Attorney be used to obtain a reverse mortgage?
Yes. A Power of Attorney can help a homeowner obtain a reverse mortgage loan. A power of attorney must meet HUD guidelines and be approved by the Title Company.
When can a Power of Attorney not be used?
There are some instances when a Power of Attorney cannot be used with a reverse mortgage. One example is if the Power of Attorney was executed by someone who could no longer give their consent to the Power of Attorney. HUD guidelines require that a homeowner’s lack of capacity be documented via letter(s) from a physician or multiple physicians to confirm they could grant Power of Attorney and that they now lack the capacity to make their own financial decisions.
Is the Power of Attorney responsible for the reverse mortgage?
A reverse mortgage is a non-recourse loan. The property is the sole collateral for the reverse mortgage. A power of attorney is not financially responsible for the reverse mortgage loan in the same manner that the homeowner is not financially responsible for the reverse mortgage loan.
Can the Power of Attorney withdraw funds from the reverse mortgage?
Yes. So long as the Power of Attorney has been reviewed and approved for the reverse mortgage, that Power of Attorney is eligible to make withdrawals from the reverse mortgage on behalf of the incapacitated homeowner.
Does the Power of Attorney document have to be recorded?
Yes. The Power of Attorney document must be recorded in the homeowner’s county. It must either be already registered or recorded at the time of closing the reverse mortgage. If the Power of Attorney is not yet recorded and needs to be recorded at closing, the original document must be available, as a copy cannot be registered.
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