Lender's Document Due Execution Authority
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2008, Volume 7, Number 4
Lender’s Documents Due Execution Authority Considerations
(by Jane L. Greenhood, Underwriting Counsel)
This article addresses the form-over-substance considerations of whether a document signed by or on behalf of a lender is valid as a result of who signed it. There was a simpler time when conveyancers’ main focus on this issue was whether the mortgage discharge was signed by a president and treasurer. Today’s considerations are far more complicated as discharges are being eclipsed by foreclosure documents and lenders delegate much of their authority, leaving us with the often asked question, “is this document enforceable?”
The Ten-Year Cure
Historically, the conveyancers’ first recourse to cure a defective lender’s authority issue was G.L.c. 184, §24. Its provisions rescued many signature-related issues with its ten-year curative effect. An instrument which would otherwise be rendered defective on account of, among other issues, an irregularity with an acknowledgement, witness, proof of or time of execution, or authority of a person signing for a corporation is cured if recorded evidence of a proceeding challenging the effectiveness of the document is not commenced within ten years of the date of the recording of the purportedly “defective” document.
Statutory Remedies to the Rescue
Over the past several years, we have witnessed several amendments to our statutes expanding the curative measures for issues raised by lenders’ failure to comply with due execution requirements.
The Sufficiency of any Bank Officer’s Signature
Today, most due execution defects are “contemporary” and we don’t have the luxury of 10 years’ passage of time as a cure. In 1992, G.L.c. 183, §54B (the “Discharge Statute”) was amended to streamline due execution authority for discharges, partial releases and assignments of mortgages and, thereafter, any person employed by the lender could sign these instruments.
In 2006, we benefited from sweeping reform to the Discharge Statute. Among the improvements was the further expansion of any bank officers’ authority to sign mortgage subordinations and powers of attorneys for the purpose of foreclosing a mortgage held by any such holder and executing any instrument necessary for that purpose, thereby eliminating the need for a vote or corporate resolution.
The Power of Attorney in Pre- and Post-Foreclosure Situations
We commonly see the mortgagee (the “Principal”) granting a power of attorney (the “POA”) to its servicer, who, in turn, signs the foreclosure deed and affidavit. Another common occurrence is for the Principal to grant a POA to certain named individuals of a given law firm to make entry and take possession of the property encumbered by the Mortgage on its behalf. This is the type of pre-foreclosure POA which was contemplated by the drafters of the revisions to Chapter 183, Section 54B enabling any corporate officer or agent of the Principal to sign the POA.
The pre-foreclosure liberal due execution authority reverts to the more rigorous requirements when dealing with post-foreclosure transactions. Therefore, POAs for the sale of Real Estate Owned Property (i.e., property being sold out of the foreclosing Mortgagee who has taken back the property at the foreclosure sale) (“REO Properties”) must comply with “conventional” due execution authority requirements such as G.L.c. 155, §8: corporate presidents/vice presidents and treasurers/assistant treasurer have unquestioned authority when signing a document jointly; anything less results in the additional requirement of a vote or a corporate resolution.
Primary and Secondary POAs, Delegation Considerations
When dealing with POAs, another frequent consideration is whether the agent under a POA is authorized or empowered to further extend his or her power to a secondary party. For example, authority is given by Bank A to Attorney in Fact A to act in its stead. Attorney in Fact A then grants a POA to B to make an Entry on behalf of Bank A. Did the POA in question grant the Attorney in Fact the power to further delegate? We often see “with full power of substitution” or “to XYZ Bank, and/or its agents” as the customary phraseology. Absent this or similar language, one has a difficult time defending the enforceability of any document signed as an Attorney in Fact of an Attorney in Fact.
The Failed Lender: Been There Done That
For those among us who survived the late 1980s and the early 1990s, the next topic of discussion will feel uncomfortably familiar, and for those among our readers who are new to these financially bumpy rides … buckle up! Following is a primer on failed lending institutions.
Mortgage Company or Banking Institution?
There are two basic categories into which lenders can be divided: mortgage companies and banks. When these institutions fail, careful attention must be paid to their metamorphosis into entities which carry out the process of discharging or foreclosing loans and selling REO Properties.
Failed Mortgage Companies and Bankruptcy
A failed mortgage company typically results in its bankruptcy. As the bankrupt in question is an entity, as opposed to a natural person, two types of bankruptcy “chapters” are available:
Chapter 7, liquidation, involves the appointment of a Trustee, who alone is authorized to deal with the bankrupt’s assets and ultimately wind up all of the company’s business affairs; or
Chapter 11, reorganization, allows a Debtor in Possession or its Trustee to continue business in the ordinary course, thereby enabling the restructuring of an entity and ongoing business of the estate with the bankruptcy court approved plan.
When obtaining a payoff and discharge from a lender in bankruptcy, if a Trustee was appointed, it is the Trustee from whom all correspondence and documentation must originate. When dealing with the Debtor in Possession in a reorganization, the Bankruptcy Court typically issues a standing order whereby the Debtor in Possession is authorized to transact all of its day-to-day operations in the ordinary course of business; thus, the acts of executing discharges, assignment, subordinations, foreclose deeds/affidavits, entries, deeds in lieu of foreclosure, short sale agreements, etc., are all customary and standard due execution considerations that need to be addressed.
When dealing with an insolvent bank, you will want to see the appointment and acceptance of the FDIC as the bank’s Receiver or Conservator. Once appointed, the FDIC takes over all aspects of operation. When reviewing due execution authority for a signatory on behalf of the FDIC, the standard requirements apply; discharges, assignments, subordinations and powers of attorney relating to foreclosures may be signed by any bank officer or agent.
Post-foreclosure deeds and powers of attorney must be signed by a president/vice president and treasurer/assistant treasurer, or alternatively, by an officer duly authorized by a vote since the FDIC is a corporation. Keep in mind that the POA that worked for the agent in question to act on behalf of the FDIC for foreclosure proceedings may not be valid for post-foreclosure sale documents as the POA must be executed by president/vice president and treasurer/ assistant treasurer, or alternatively pursuant to a vote or corporate resolution.
When last minute documents finally arrive on your desk for the short sale closing scheduled to take place yesterday or other extremely time sensitive circumstances, take the time to review who is signing on behalf of whom and ascertain if there is sufficient authority in place to comply with due execution considerations. As always, we encourage you to contact us to review these and other title concerns.