Why lenders and Closing Attorneys should be wary of mortgages executed under Power of Attorney?

Why lenders and Closing Attorneys should be wary of mortgages executed under Power of Attorney?

April 29, 2015 Mike Sperling Leave a comment

A recent Decision in the United States Bankruptcy Appellate Panel for the First Circuit, BAP No. MS 13-012, Steven Weiss, Chapter 7 Trustee, Plaintiff-Appellant v. Wells Fargo Bank, N.A., Defendant-Appellee has caused “notary hysteria” in some parts of the conveyancing community.

After a review of the Decision by members of the REBA Board, the belief is that the Court “got it right,” and the Decision has no impact on any instrument that is not executed under a Power of Attorney. The case continues to support the use of the Executive Order Notary format as compliant with the statutory requirement for acknowledgments.

In this case, the Mortgagors executed a Mortgage to Wells Fargo Bank pursuant to a Power of Attorney given to a representative of the Lender, LSI. The Trustee maintained that the acknowledgment suffered from “‘three fatal flaws’: (1) the use of the phrase “personally appeared,” when in fact it is undisputed the Debtors did not appear; (2) the failure to specify in the appropriate blank space the method by which the notary identified the signer (or signers) of the Mortgage; and (3) the failure to indicate whose free act and deed the notary
was verifying.”

The Court cited the seminal acknowledgment case in Massachusetts, McOuatt v. McOuatt, 69 N.E.2d 806, 810 (Mass. 1946): “[n]o particular words are necessary as long as they amount to an admission that [the grantor] has voluntarily and freely executed the instrument.”

The issue is not whether the language in the Executive Order format is sufficient to comply with the statutory requirement (which it clearly is), but whether it was clear that the mortgage was executed as the voluntary act of the mortgagors, rather than the voluntary act of their attorney in fact.

The Court states: “We agree with the Trustee’s third argument, however, namely that the foregoing language fails to unequivocally express that the execution of the Mortgage was the free act and deed of the principals, i.e., the Debtors, and that this flaw is, indeed, fatal. Here, the preprinted form utilized by the notary combined with her failure to attend to the blank space and the inapplicable verbiage creates ambiguity concerning whether the execution of the Mortgage was the voluntary act of the Debtors. Although the acknowledgment contains a recitation that the Mortgage was signed “voluntarily for its stated purpose,” we are left to speculate whether the voluntariness relates to the principals (the Debtors) or to the attorney-in-fact Obringer).

What is the proper way to execute and acknowledge a mortgage signed under power of attorney? See Masschusetts Land Court Guideline # 15. http://www.mass.gov/courts/docs/courts-and-judges/courts/land-court/guidelines-registered-land.pdf