Power of Attorney When Buying or Selling Real Estate

Authorizing Somebody Else to Act on Your Behalf

A power of attorney is the term used for an express authorization allowing somebody else to act on your behalf for a specific purpose. A power of attorney can be as general or as specific as the person creating the authorization wants and can allow somebody to make healthcare, financial, and other decisions on their behalf.

One common use for a power of attorney is in the context of a real estate transaction. The main use for a real estate power of attorney is to allow somebody else to execute, or sign, documents on behalf of a buyer or seller who is not present at the time of conveyance (or transfer) of the real estate property.

For example, if a Seller has moved to another state but is selling property in Connecticut, they may want to authorize a family member or their attorney to sign the deed transferring title on their behalf. A Buyer who is not present for a closing, for example if they are on active duty, can authorize a family member or their attorney to sign the mortgage and other loan documents on their behalf. Even entities such as corporations or LLC’s can authorize an individual to act on their behalf for the purpose of executing closing documents.

Whenever the use of a power of attorney is being considered, an experienced real estate attorney should be involved. The power of attorney must contain certain terms and be drafted properly, and then needs to be executed in a certain manner, to be compliant with Connecticut General Statute subsection 47-5. The deed will also need to be recorded on the land records in proper order, or the documents executed under that power of attorney will not be enforceable. Finally, an authorized individual under a power of attorney signing documents on behalf of the buyer or seller must sign in a specific way. An experienced Connecticut real estate attorney can make sure a power of attorney is drafted, signed and recorded properly and direct the authorized agent on how they must sign documents.

At Glouzgal Law PLLC we draft Connecticut compliant power of attorney authorizations for our real estate clients, and will even act as power of attorney, at no extra cost if they are hiring us as closing agents to buy or sell property. We can also draft power of attorney authorizations for all other clients for a fee. If you need our assistance please call us at 203-906-9622.

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Title Search and Title Insurance in a Purchase or Refinance of Residential Real Estate

Lender Requirements and Buyer Protections

When you are buying residential real estate, you are paying money in exchange for title to the property. It is in the interests of the buyer, and the lending institution giving the buyer a mortgage, to make sure that title is clear and “marketable”. The buyer wants to make sure they are actually being buying the property rights as promised by the seller. The lender wants to make sure that the collateral on the mortgage is as promised; the property has marketable title and is clear of other encumbrances, such as mortgages or liens. So, how do the buyer and lender make sure that title is clear and marketable?

Title Search

The buyer will need to hire a real estate attorney to perform and/or review a title search. A title search reviews the history of the property by looking at the land records. The title search will provide the legal description of the property, showing exactly what the buyer is buying.

For purchases, all conveyances, mortgages, liens and releases are reviewed going back 40 years (called the “chain of title”). By reviewing the title search, the real estate attorney for the buyer will be able to tell if the seller owns the property, how the seller or sellers hold title, do they have the right to sell it, are there any liens or mortgages on the property that must be paid off to make title marketable, and if there are any relevant powers of attorney relating to the property.

The Buyer may also choose to do a municipal search, which reviews all zoning and building permit for compliance with local laws.

For a refinance, only a current owner search is necessary. Through a current owner title search, the real estate attorney performing the refinance closing will be able to see if the borrower is truly the owner, and what mortgages and liens must be paid off to give the new lender first priority.

Title Insurance

Lenders are not willing to rely on title searches and attorney opinion when it comes to making sure they have actual collateral when making mortgage loans. Therefore, Title Insurance was invented to cover losses in the case that a title defect is discovered after the closing on the property. Title insurance is available to protect both the Lender and the Buyer from title defects that could result in loss of property value, or even loss of ownership of the property. In Connecticut, real estate attorneys act as title insurance agents and will prepare and secure the policy on the Buyer’s behalf.

For a purchase, the Lender will demand that the Buyer purchase title insurance to cover the Lender. The Buyer will also have the option to purchase additional coverage that will protect their interest in the property.

For a refinance, the Lender will similarly demand title insurance to cover their interest, but no Buyer policy is necessary. The homeowner will still be covered by the title insurance from their purchase. It should be noted that even if the refinance mortgage lender is the same as the purchase mortgage lender, a new title insurance policy will need to be purchased.

What does title insurance cover?

1. Insures against anyone else making a claim that he or she is the owner of all or part of the property;
2. Insures against liens or other encumbrances that were missed by the title search or misindexed by the town clerk;
3. Can offer protection of ownership even where defects in title marketability exist (such as old unreleased mortgages);
4. Insures a legal right of access (though this may be just by foot);
5. Insures against violations of government regulations, but only those violations listed on the land records;
6. Insures against the exercise of eminent domain in certain situations;
7. Insures against fraudulent conveyances in the chain of title;
8. Any defect in title that arises from the date of the policy (the closing date) and the date the deed and mortgage are recorded;
9. For the Lender, it insures the enforceability of their lien created upon the title of the property by the mortgage;
10. For the Lender, it insures the priority of their insured mortgage lien against other liens or encumbrances;
11. For the Lender, it insures the priority of their mortgage lien against liens for services, labor or materials for work done on the property (in conjunction with an Owners Affidavit signed by the Seller);
12. For the Lender, it insures the assignment and assignability of any mortgages that are assigned to and assumed by the Buyer;
13. Pays attorneys fees and costs of defending title and the insured mortgages.

There is also available an expanded title insurance policy; which is a good idea for Buyers and may be necessary for the Lender in certain situations. In addition to the protections of a standard title insurance policy, the expanded title insurance policy also covers:

1. Correcting or removing existing violations of restrictive covenants;
2. The inability to obtain building permits due to existing violation of subdivision regulations;
3. Removal of existing structures that were built without proper building permits;
4. Removal of existing structures due to non-compliance with zoning laws;
5. If the property cannot be used as a single family home due to zoning regulations;
6. Removal of an existing structure that is then found to encroach upon the land of a neighbor;
7. If a neighbor builds a structure that encroaches upon the property of the insured;
8. For one to four family homes that have a valid certificate of occupancy and no recent boundary line changes, offers survey coverage even without a survey.

What does title insurance not cover?

1. Government regulations for which a violation was not recorded on the land records;
2. Rights of eminent domain where a notice of exercise was not recorded on the land records;
3. Defects, liens or encumbrances that:
   1. were created or agreed to by the insured;
   2. known by the insured but not disclosed to the title insurance company;
   3. that do not result in any loss to the insured;
   4. were created or attached after the date of the policy;
   5. resulting from the Buyer’s lack of “bona fide purchaser” status.
4. For the Lender, enforceability issues created by the Lender’s inability to meet Connecticut business practices requirements;
5. For the Lender, enforceability issues created by the Lender’s lack of compliance with consumer protection or truth in lending laws;
6. Any liens for services, labor or materials for work performed after the date of policy and not paid for by mortgage proceeds;
7. Any claim arising from bankruptcy or other creditors’ rights laws.

How much does title insurance cost?

The cost of title insurance is set by statute and controlled by the legislature. With that said, title insurance premium are set increase beginning January 1, 2016 for the first time in decades.

With that said, we will look at the pricing structure at the time of the writing  of this article, even though we are only weeks away from the increase.

Let’s use the example of a house that will cost $200,000 (the amount of Owner coverage) and where the mortgage will be for $170,000 (the amount of Lender coverage). A standard lender title insurance policy will cost $607.00. If the Buyer decides to purchase a standard owner policy in addition to the standard lender policy, the total for both is $750.00. Expanded coverage for both Buyer and Lender would cost $825.00 for both policies. This is money well spent for the Buyer, as the title policy remains in effect until the property is sold.

In a refinance, there is no need for an owner policy as the owner is not conveying the property and will be covered by the title insurance policy from their purchase. The Lender policy will need to be purchased to cover the new mortgage, even if the refinance lender is the same as the purchase lender. The good news is that policy is discounted so that a $170,000 lender policy for a refinance would only cost $400.00.

At any time you can get a title insurance quote from the Connecticut Attorneys Title Insurance Company on CATICulator.com.

The Bottom Line on Title Insurance

The title search and title insurance are sometimes unanticipated and unwelcome expenses when the Buyer is presented with their closing costs. However, the Lender policies are required by the mortgage companies and banks, and the Owner policy is a relatively cheap addition that provides a lot of protection. Expanded policies offer buyers the peace of mind that they will not have to incur costs of compliance with violations that were not discovered before the purchase, and even some issues that arise after the purchase. If the Lender MANDATES title insurance to cover its investment, shouldn’t the Buyer similarly protect themselves?

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Occupancy Affidavits When Buying a Residential Property

What is an Occupancy Affidavit? Why is it required? What can happen if it’s not honored?

When you buy a residential property, your bank will require you to sign an Occupancy Affidavit or Occupancy Agreement. This document will be signed under oath and notarized at closing.

What is an Occupancy Affidavit? This agreement will represent to your bank (the Lender) that you (the Buyer) will move into the property within the next 30 days, and usually require the Buyer to live there for a certain period of time, for example 1 year. There is no standard occupancy affidavit, and each Lender generates their own agreement, so the exact terms and language will vary from one Lender to the other.

Why Do Lenders Require Occupancy Agreements? The necessity of the occupancy agreement is due to the difference between loan packages for personal residences and investment properties. Residential loan packages come with lower interest rates while investment loan packages have higher interest rates, due to higher risk factors with investment properties that will be rented out. If the Lender is going to be giving the Buyer a personal residence loan package, they want an assurance that they will in fact be living there.

So What? What If the Buyer Does Not Honor the Occupancy Affidavit? Since the Affidavit is signed under oath and notarized, and since its terms are clear or “unambiguous,” it will be fairly easy for the Lender to enforce their rights in court. Failure to honor an occupancy affidavit is considered mortgage fraud. The most likely result is that the Lender, upon discovering a misrepresentation, can immediately call the entire outstanding amount of the mortgage note. There may also be additional civil and criminal penalties. How would the bank find out? New “Risk Management” software can help Lenders use your credit card bureau information (public records) and and tax documents (which you agree to provide as part of any closing) to determine your primary residence and check it against the property you purchased, quickly and easily.

When buying real estate property you should always seek the expertise of an experienced real estate closing attorney. Part of your attorney’s job is to evaluate your goals for the property and make sure you are getting the proper loan package.

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