Using Powers of Attorney or Conservatorships When Doing a Reverse Mortgage
Using a Power of Attorney or Conservatorship with a reverse mortgage can be tricky.
Power of Attorney - POA - Attorney in Fact
The use of a power of attorney opens the door to legal issues as well as potential fraud. So, whenever a POA is used in a reverse mortgage transaction, it is examined very carefully.
Typically, the POA would be used for either an incapacitated or incompetent borrower. It must be a general, durable Power of Attorney that survives the incapacitation or incompetency. Some lenders may allow the POA to be used for a frail borrower who isn't able to sign the dozens of application documents.
Incompetent borrowers would not sign any of the paperwork and would not be required to attend HECM Counseling. The POA signing for the incompetent borrower would need to attend the counseling.
The durable power of attorney must be created while the borrower is competent. If the POA was prepared just days or weeks before the loan application, most lenders would question whether the borrower was competent when the POA was created. This would be especially true if an attorney was not part of the creation of the document.
The lender will be extremely careful about complying with all the laws involving Powers of Attorney and may question the slightest detail regarding the document.
Typically a doctor's letter will be required to show the borrower is not currently competent. (If the borrower is competent, they will need to sign the documents themselves.) If the Power of Attorney document calls for two doctors' letters, then two will be needed.
At times, a borrower may be vested in a trust and be using a Power of Attorney. This just opens the door to one more potential of something now working out as planned. Some trusts don't allow a Power of Attorney to be used when signing as the trustee or trustor. This could be a major roadblock. I've seen this happen even when the same attorney created both the trust and the Power of attorney.
When signing documents, the POA will sign as, "POA name as attorney in fact for borrower name."
If the borrower is incapacitated or incompetent, a conservatorship may be needed. This is much more complicated than having a POA drawn up while you are healthy. (Tip - If you don't have a POA now, put it at the top of your 'to do' list.) One needs to go to court to get permission to act for someone who is incapacitated or incompetent if they don't have a valid power of attorney.
As you can image, this court action can be costly and take time. In most cases, the conservator would need court permission for any action that isn't initially spelled out in the conservatorship. If you were just now creating a conservatorship in order to help someone do a reverse mortgage, you would want that spelled out in the initial court documents. If you already held a conservatorship and were now wishing to help your conservatee with a reverse mortgage, you would need to go back to court to get permission.
Like the POA, the conservator would need to do the HECM Counseling.