Ask the Underwriter: Q3 2023

1. What are the highlights of Vermont’s Uniform Power of Attorney Act and when is it proper to use a Power of Attorney in Real Estate Transactions?

Vermont’s legislature enacted a new power of attorney statute that went into effect on July 1, 2023 - the "Vermont Uniform Power of Attorney Act" (UPOAA) and which can be found at Title 14, chapter 127.

See First American’s Underwriting Standard (VT-2023-002(2)) regarding underwriting standards when using the Powers of Attorney under the new law. The Standard notes that you may rely on Powers of Attorney under the new Act if executed on or after July 1, 2023, so long as the power of attorney contains: (a) signature of the principal; (b) an acknowledgement; and (c) a sufficient delegation of authority for the agent to perform the acts necessary to complete the transaction done by specific grant or by the incorporation of general authority through the use of statutory descriptive terms. The statutory form power of attorney (see 14 V.S.A. §4501 for the “long form” and 14 V.S.A. §4502 for the real estate short form) may be utilized as well.

Note too, that that the new UPOAA does not require a witness, while 27 V.S.A. §305 states that a witness is required for a power of attorney in the context of a real estate transaction. As noted in the attached Underwriting Standard, First American’s position is that a witness is not required if a power of attorney is otherwise in compliance with Vermont’s UPOAA statute.

Using a Power of Attorney in a real estate transaction comes with some level of risk - fraud, overreaching, elder abuse to name a few. Particularly in the current climate of fraud in real estate transactions, it is imperative to analyze each transaction as to whether it is appropriate to use a Power of Attorney, consider the risk associated with its use, and to analyze the granted powers in the context of the concurrent transaction.

Here are some Best Practice Guidelines, though the attached Standard has some further considerations:

• Why is the POA being requested in this transaction? Is it a matter of convenience, or need?

• How old is the POA? Is it potentially too old to be prudently relied upon?

• Have you conferred with the principal who executed the POA? Are they aware of the transaction?

• Does the POA include the express power to sell or mortgage real property?

• Is the POA “durable” (i.e., “This Power of Attorney shall not be affected by the subsequent disability or incapacity of the principal or by lapse of time.”)?

• Does the POA depend upon a triggering event (e.g., “This Power of Attorney shall become effective only upon the disability or incapacity of the principal.”)? If so, what evidence establishes the event has occurred?

• Has an event happened which might affect the use of the POA (e.g., divorce, death of or revocation by the principal)?

• Is there self-dealing, and is it explicitly authorized under the POA?

If you ever need any guidance on Vermont powers of attorney, powers of attorney executed in other states, or have concerns about the risk involved in using a power of attorney, please reach out to the Vermont State Office.

2. What is a Short Form Policy and when can an agent issue a Short Form Loan Policy?

The Short Form Loan Policy is a shortened version of the ALTA or Eagle Loan Policy. They are designed to simplify the process of issuing the final loan policy.

The main differences in a Short Form Loan Policy (as compared to the “long form” loan policy) are:

• The Date of Policy is the date of closing, as a Short Form Loan Policy is issued at closing and prior to recording of the mortgage, as well as the release of any mortgage being discharged.

• The Exhibit A legal description is not included with the Short Form Loan Policy.

• The full jacket is not included with the Short Form Loan Policy – the jacket provisions are incorporated by reference.

• Schedule B listing exceptions is included.

• Some endorsements are automatically incorporated (and which ones depends on whether it is an ALTA or Eagle).

Short Form Loan Policies may only be used in residential loan transactions, where the borrower holds a Fee Simple Estate, and where the borrower and title holder are the same. Short Form Loan Policies cannot be issued on unimproved land, commercial land or for construction loans. So, for example. if your lender is lending on a residential construction loan and asking for a short form loan policy, you will have to let them know that they can only get the standard long form loan policy.

Your office should still prepare a commitment and select the applicable Short Form Loan policy (ALTA or Eagle) for Schedule A item 2(b). Your office will still conduct a post‐closing title update for any owner’s policy issued in conjunction with the Short Form Loan Policy, and to confirm the recording of the mortgage and any discharges and that there are no intervening liens or other matters.

When it comes to remitting a Short Form Policy, if there was an Owner’s Policy issued in connection with the closing, you cannot remit the Short Form Policy until the Owner’s Policy is also issued.

3. How to underwrite transactions involving entities, especially considering the current state of fraudulent transactions in real estate?

In the current environment of open and available information, anyone can create entity documents and file them with the Secretary of State without the need to prove their authenticity. This creates a unique opportunity for fraudsters, especially in the world of real estate. A fraudster can ”hijack” an entity by filing phony documents and fabricating operating agreements or resolutions just prior to a sale or refinance to drain the equity from a property or sell it for their own benefit. “Trust but verify” has become the new mantra. The key is to understand how to validate the documents being presented. Below is a list of resources you can use when underwriting any transaction involving an entity to help mitigate this particular risk.

Documentation: If you are asked to insure a transaction involving an entity in any capacity (seller, borrower, etc.), you should review the following documents to confirm the validity of the entity and the authority of the signor on any instrument:

• Formation Documents: (e.g., Articles of Organization, Articles of Incorporation, etc.). These governing documents are usually necessary to create the entity and may dictate limitations on its business activities. In a few states, reviewing these documents can assist with identifying the signatures required for the transfer deed or mortgage.

• Operating Documents: (e.g., Operating Agreement, Partnership Agreement, Corporate By-Laws, Certificate of Incumbency etc.). These documents govern who can sign on behalf of the entity in question. It is important to review these documents and any amendments thereto to verify you are dealing with the correct individuals, their authorization to conduct business on behalf of the entity, and when they have authority. Compare these documents with the Formation Documents to verify they are consistent throughout.

• Certificate of Good Standing:  The Secretary of State may be able to provide you with a certificate of good standing or similar document to confirm that the entity is up-to-date. Any pending actions or compliance issues should be resolved before closing.

Were the closing documents executed outside of the settlement agent’s control? It is always a best practice to have a trusted notary acknowledge any transfer or encumbering documents and to use notaries that implement local best practices in reviewing the identification of the signors. As a national title company, First American may be able to provide names of trusted notaries or real estate professionals in other jurisdictions to assist in this matter.

Do the previous signatures of the entity members match and are the signatures consistent? Inconsistent signatures are a red flag in any transaction, but even more so when dealing with entities. If available, compare signatures with those in the entity documents to those in the chain of title.

Is the entity not represented by counsel? An outside law firm is a critical screen that provides additional confidence in the legality of a transaction and the authority of the document signors. If it is a commercial transaction, there may be a transaction legal opinion which is another useful source of information. The absence of outside counsel should prompt a closer look into your deal.

Are there recent changes to the ownership of the entity? Recent changes just before a property transfer or encumbrance are highly suspicious and warrant additional questions or independent verification.

Is there any inconsistency in the signing authorities named in the documents filed with the State and the unfiled operating documents presented to you for review? While changes in signors are not unheard of, it may be worth looking back in the chain of title (including prior mortgages) to make sure the appropriate grantors signed the transfer documents, and they had the appropriate authority to do so at the time the documents were signed and notarized.