I am the Claims Liaison for the FNTG NY Agency Department. As a liaison between our agents and the FNTG claims department, I analyze and investigate many claims. Since claims prevention is always our goal, I thought it would be helpful to review a sample claim involving a fraudulent power of attorney:
Facts: Brother and Sister owned the property. Brother, using a Power of Attorney, conveyed the property to himself, and entered into a cash-out refinance of the property. Within a month after the closing, he conveyed the property back to himself and Sister. Sister claimed that the Power of Attorney was a forgery, and provided proof that she was out of the country at the time the Power of Attorney was allegedly executed by her.
Amount of Loss: The Company suffered a loss of $340,000.00, including litigation expenses.
What Went Wrong: First, the chain of title raised some red flags. In the immediate years prior to the insured transaction, there had been several unexplained no-consideration conveyances back and forth between Brother and Sister, with Sister being taken out of title and being put back into title after financings had occurred. This would have been revealed if the agent did not erroneously rely on a last owner search. Second, the most recent conveyance was a conveyance by the donee of the power for no consideration, which should have immediately called for further investigation by the agent. Here, there was no documentation in the agent’s file to indicate that any investigation had been performed. Finally, the power of attorney had not been recorded prior to closing. After the closing, the power of attorney was rejected by the recorder because of deficiencies in the form.
A. Powers of Attorney
- It is important to ask the question: Does this transaction make sense from the standpoint of the donor of the power of attorney?
- A standard exception (frequently not read by the parties or otherwise ignored) states that any power of attorney utilized at closing must be submitted for consideration prior to closing. If it is being submitted for the first time at the closing table, it may be too late to conduct an adequate investigation into the bona fides of the power. Under such circumstances, agency counsel must be consulted before the closing can proceed.
- Additionally, inquiry must be made (1) that the donor of the power was competent at the time of execution of the power; (2) that the power has not been revoked; (3) that the power is still in full force and effect; and (4) that the donor is still alive at the time of closing. An affidavit by the donee is generally inadequate to satisfy all of these requirements.
- Also, the power of attorney form being used must be reviewed for legal sufficiency, and to assure that the donor has given the donee the authority to enter into the transaction that we are now asked to insure.
- Lastly, powers of attorney often give the donee the authority to make gifts to others or even themselves. We regard such transactions as highly suspect, and a thorough investigation into the facts must be made before we are willing to accept such a conveyance for insurance purposes.
B. Last Owner Searches:
1. This type of search is inappropriate when the last deed of record is a conveyance for no consideration.
If you have any claims-related questions or comments, I encourage you to respond to this post. You can also contact me at firstname.lastname@example.org or (914) 682-3904.