I had occasion to learn, recently, about the impact of a power of attorney on a real estate transaction: the most basic lesson being that powers of attorney increase fraud risk. So much so, in fact, that the Law Society of Upper Canada has recommended that their use should be avoided wherever possible in real estate transactions.

Of course, one of the situations in which it may NOT be possible to avoid dealing with a power of attorney arises when it’s in place on the other side of your transaction: For example, where you are representing a purchaser buying from a vendor who is selling through an attorney.

The fraud potential, in this scenario, can take at least three forms: the attorney can have completely fabricated the POA document; he or she could be misusing a POA (for example, for a purpose for which it is not operative); or he or she can have obtained it improperly, for example, through duress.

This fraud potential requires special diligence on your part. Exactly what is required of you MAY depend on whether or not there are any “indicia of fraud” in the transaction; for more about this, consult both the Law Society’s “Guidelines On Powers Of Attorney In Real Estate Transactions” and the reasons in Reviczky v. Meleknia. At a minimum, and even in the absence of any suspicious circumstances, you will need to take a number of basic steps to limit the potential for fraud.

First, determine whether any mortgage lender involved in the transaction (whether or not you are acting for it) is willing to extend the funds where the vendor is acting through a POA, and on what terms. Make the same inquiries of the proposed title insurer, if any.

Next, obtain and carefully review a true copy of the POA to determine whether it provides the authority being relied upon to complete the transaction, and whether it meets formal requirements (for example, under the Substitute Decisions Act, 1992).

Requisition the delivery of a registered copy of the POA.

Carefully review transaction documents signed under the authority of the POA.

Finally, comply with any other investigative steps required by the lender and/or the title insurer.

Want to know more? For a more in-depth discussion of managing risks on BOTH sides of the transaction, see “Powers of attorney and solicitors’ liability: The case law” published in the Summer 2008 edition of LAWPRO Magazine.

Categories: Real Estate