Title Standard Spotlight
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2005, Volume 4, Number 4
Title Standard Spotlight
by Ward P. Graham, New England Division Counsel
A couple of underwriting situations with which I have dealt recently involving Powers of Attorney and reliance on the attorney-in-fact’s affidavit suggest that a review of some issues related to powers of attorney and the attorney-in-fact affidavit is in order. We will look at these issues in the context of REBA Title Standard No. 34, entitled “Powers Of Attorney.”
In a previous article in The Massachusetts Focus, my colleague, Gary F. Casaly, Esq., provided an excellent overview of powers of attorney, both at common law and under modern statutory enactments, including the Uniform Durable Power of Attorney Act, G.L.c. 201B. In discussing the conclusive effect of an affidavit by an attorney-in-fact regarding the non-revocation and non-termination of the power of attorney, Gary’s article refers to the relevant statutory provision, G.L.c. 201B, §5, which provides for reliance on such an affidavit for actions involving both durable and non-durable powers of attorney. In relation to reliance on the affidavit, Gary’s article refers generally to Title Standard 34 in addition to the statute.
This article will focus in a little more detail on the provisions of Title Standard No. 34 and provide some cautions to help you avoid possible pitfalls that could occur in unquestioning reliance on the attorney-in-fact affidavit.
Title Standard No. 34
With respect to durable powers of attorney, Title Standard No. 34 provides:
- An instrument executed after September 19, 1981, by an agent under a recorded, durable power of attorney containing a power to convey is not on that account defective during any period of disability or incapacity of the principal provided:
(a) the power of attorney had not, at the time of such execution, terminated pursuant to its own terms; and
(b) there has been recorded an affidavit signed by the attorney in fact or agent under the penalties of perjury stating that the attorney in fact or agent did not have at the time of such execution pursuant to the power of attorney, actual knowledge of the revocation or of the termination of the power of attorney by death.
As to non-durable powers of attorney, Title Standard No. 34 provides:
- An instrument executed after December 31, 1977, by an agent under a recorded power of attorney containing a power to convey is not on that account defective provided:
(a) the power of attorney had not, at the time of such execution, terminated pursuant to its own terms; and
(b) there has been recorded an affidavit signed by the attorney in fact or agent under the penalties of perjury stating that the attorney in fact or agent did not have at the time of such execution pursuant to the power of attorney, actual knowledge of the revocation or of the termination of the power of attorney by death, mental illness or other disability.
The Comments to this title standard cite statutory references for paragraph 1 as “M.G.L. c. 201B, effective September 20, 1981,” and, for paragraph 2, “M.G.L. c. 201, § 50, effective January 1, 1978, and M.G.L. c. 201B, §§ 4 and 5.” These statutory provisions ameliorated the harsh common law rule that a power of attorney could terminate by off-record events, such as death, incapacity or even an oral revocation, so as to affect the validity of a transaction occurring after such termination.
G.L.c. 201B, §4 provides:
(a) The death of a principal who has executed a written power of attorney, durable or otherwise, shall not revoke or terminate the agency as to the attorney in fact or other person, who, without actual knowledge of the death of the principal, acts in good faith under such power. Any such action so taken, unless otherwise invalid or unenforceable, shall bind a successor in interest of the principal.
(b) The disability or incapacity of a principal who has previously executed a written power of attorney that is not a durable power shall not revoke or terminate the agency as to the attorney in fact or other person, who, without actual knowledge of the disability or incapacity of the principal, acts in good faith under such power. Any such action so taken, unless otherwise invalid or unenforceable, shall bind the principal and his successor in interest.
These two statutory provisions protect both the innocent attorney-in-fact and the innocent party dealing with the attorney-in-fact when they are unaware of the death or, in the case of a non-durable power, the disability or incapacity of the principal and are acting in good faith. In most cases, you will likely be dealing with a power of attorney being used by a seller or a borrower whom you do not represent and, therefore, are unlikely to know whether the attorney-in-fact has any knowledge about a termination or revocation of the power.
Reliance on Affidavit
If you represent the person dealing with the attorney-in-fact, however, assuming that person has no knowledge of the termination or revocation of the power of attorney, such person can be protected by the attorney-in-fact’s affidavit pursuant to Title Standard No. 34 and G.L.c. 201B, §5. The latter statute provides, in pertinent part:
As to acts undertaken in good faith reliance thereon, an affidavit executed by the attorney in fact under a power of attorney, durable or otherwise, stating that he did not have, at the time of exercise of the power, actual knowledge of the termination of the power by revocation or of the death, disability or incapacity of the principal shall be conclusive proof of the nonrevocation or nontermination of the power at that time. . . . This section shall not affect any provision in a power of attorney for its termination by expiration of time or occurrence of an event other than express revocation or a change in the capacity of the principal.
It is not clear to me why the same wording convention used in section 4 (“the attorney in fact or other person, who, without actual knowledge . . . , acts in good faith”) was changed for section 5 (“As to acts undertaken in good faith reliance thereon, an affidavit executed by the attorney in fact . . . shall be conclusive proof of the nonrevocation or nontermination”). Strangely, in section 5, there is no actual mention of in whose favor it is that the attorney-in-fact’s affidavit shall be conclusive. There is no mention of any “other person.”
It is certainly implicit, however, that “other persons” are generally the ones to be benefited by the conclusive proof of nonrevocation and nontermination provided by the affidavit. Indeed, this was one of the observations in Gagnon v. Coombs, 39 Mass.App.Ct. 144, 654 N.E.2d 54 (1995), where the court stated that “such a document is intended as protection for third parties dealing with an agent who rely thereon, not as a self-serving mechanism to validate the acts of an attorney in fact who is chargeable with constructive notice of the pro tanto termination of her authority.” Id., 39 Mass.App.Ct. 153, n. 9, 654 N.E.2d 60. Accordingly, we will focus our attention on some cautionary notes regarding the protections afforded by Title Standard No. 34 and these statutes in relation to the party dealing with the attorney-in-fact.
Self-Termination of POA
First, it is important to keep in mind that a power of attorney can terminate by its own terms. This can happen by inserting a date certain by which the power terminates or expires. This can also happen if the power provides for its termination on the occurrence of some event, such as “upon the recording of a notice of termination at the Registry of Deeds” or “upon my return from Iraq” or “upon the consummation of the sale/mortgage of my property at 123 Main St.” when you are dealing thereafter with the principal’s property located at 321 Elm St. If this is the case, then you may not be able to rely on the attorney-in-fact’s affidavit as conclusive proof of nontermination.
This principle is embodied in the caution provided in paragraph (1)(a) of the Title Standard (the power hasn’t terminated pursuant to its own terms). It is also specifically stated in the last sentence of c. 201B, §5: “This section shall not affect any provision in a power of attorney for its termination by expiration of time or occurrence of an event other than express revocation or a change in the capacity of the principal.” Thus, it is important to read through any power of attorney to make sure there are no such provisions that could make it terminate by its own terms on or before your transaction.
Actual Knowledge and Good Faith
Second, there is a recurring theme in both sections 4 and 5 of c. 201B. Not only must the person relying on the nontermination provisions of section 4 and the conclusive affidavit provisions of section 5 have no “actual knowledge” of the circumstances that could give rise to a revocation or termination of the power, but such person must also be acting in “good faith.” “Generally speaking, a good faith purchaser is one who purchases assets for value, without fraud, misconduct, or knowledge of adverse claims. [Citations omitted.]” Oakville Development Corp. v. F.D.I.C., 986 F.2d 611, 614 (C.A.1, Mass. 1993) (“Knowledge of pending appeal, without more, would not deprive purchaser at foreclosure sale of good faith status.” Id.)
In the context of construing the term “actual notice” in relation to the recording statute, it has been said:
The statutory requirement of ‘actual notice’ has been strictly construed. Richardson v. Lee Realty Corp., 364 Mass. 632, 635, 307 N.E.2d 570 (1974); McCarthy v. Lane, 301 Mass. 125, 128, 16 N.E.2d 683 (1938). Knowledge of facts which ordinarily would put a party upon inquiry is not enough. Id. If the Court was concerned with an unrecorded instrument of which it were claimed a subsequent purchaser had notice, knowledge of facts which might arouse suspicion would not be sufficient to destroy the bona fides of the subsequent purchaser. Richardson v. Lee Realty Corp., supra, 364 Mass. at 634, 307 N.E.2d 570 (1974). Evidence of open occupation, possession and cultivation of land and enclosure by a party who has an unrecorded deed thereof, is not sufficient to warrant the inference that a third person had any notice of such deed. Pomroy v. Stevens, 52 Mass. 244 (1846). Strict construction of the notice requirements is a consequence of the intent of the registry laws to establish a record system upon which purchasers can rely. Richardson v. Lee Realty Corp., 364 Mass. at 635, 307 N.E.2d 570. “[P]urchasers should not be required to look beyond the registry of deeds further than is absolutely necessary.” Swasey v. Emerson, 168 Mass. 118, 120, 46 N.E. 426 (1897).
In re Dlott, 43 B.R. 789, 793-794 (Bkrtcy.Mass. 1983). The latter statement is not entirely true as it ignores the requirement of searching the relevant county probate records as a matter of course. See Oliver v. Poulos, 312 Mass. 188, 192-193, 44 N.E.2d 1, 4 (1942). See also, Eno & Hovey, Real Estate Law, 28 Mass. Prac. §2.11 (4th Ed. 2004).
Matters Found of Record
Certainly, if something is recorded at the Registry of Deeds, we all know that we have constructive, if not actual, notice of it and we’re bound by it. Thus, I would submit, that if you find a death certificate or an M-792 Estate Tax Release on record in the name of the principal, you will have actual or constructive knowledge (imputable to your client, of course) that the power of attorney had terminated by death. This, it would seem to me, would prevent good faith conclusive reliance on the attorney-in-fact affidavit. There was no third party relying on the affidavit in Gagnon v. Coombs, supra, and the court found that the principal (dad) had not revoked the daughter’s power of attorney expressly by the time she transferred the property to the trust. The court nonetheless found that her knowledge of the execution of the purchase and sale agreement constructively revoked the power of attorney as to the family farm, essentially by operation of law. The same rationale would apply to a third party who had similar actual knowledge of a revoking or terminating event, especially if a matter of record at the Registry of Deeds.
What about what we find in the probate records? That’s where an additional caution comes into play as pointed out by a recent underwriting situation. Certainly, if you find, for example, a probate for the principal, then you know the power of attorney has been terminated by operation of law. But what if you find a conservatorship or guardianship for the principal and it is based on incompetency? We know that a durable power of attorney survives incompetency and, indeed, is designed to do so. Does the fact of the conservatorship or the guardianship have any impact on the power of attorney or the conclusiveness of an affidavit?
Coexistence of POA and Guardianship, etc.
Section 3 of c. 201B provides, inter alia, that a court-appointed fiduciary, including a conservator or a guardian, “shall have the same power to revoke or amend the power of attorney that the principal would have had if such principal were not disabled or incapacitated.” Based on Oliver v. Poulos, supra, we are bound by what appears in the probate records. However, based on the Oakville Development Corp. case and In re Dlott, supra, what we find in those records may or may not provide constructive or actual knowledge of facts which would prevent a purchaser or mortgagee from acting in good faith reliance on an attorney-in-fact affidavit. Under Section 3, the mere fact of the appointment of a conservator or guardian does not in itself cause a termination or revocation of a durable power of attorney. Annino, Estate Planning, 23 Mass. Prac. §3.6 (2nd Ed., 1997). The fiduciary is merely empowered to do so if the principal could have done so. Id. “The statute contemplates the coexistence of the durable power of attorney and the protective proceeding.” Id. Thus, the knowledge that a conservator or guardian has been appointed should not, by itself, prevent good faith reliance on an affidavit by the attorney-in-fact.
Knowledge of Breach by Fiduciary
Let’s consider a little twist as was the case in my underwriting situation. In that situation, the petition for a guardianship of an incompetent parent by one child included a recitation of factual circumstances and claims that another child, who had a power of attorney from the parent, was engaged in self-dealing, squandering the principal’s assets and acting in violation of his fiduciary responsibilities under the power of attorney. The petition specifically recited that the purpose of the guardianship was not only to provide for the protection of the parent’s physical well being, but also the parent’s estate and, immediately upon appointment, to exercise the guardian’s power under c. 201B, §3 to revoke the power of attorney and compel an accounting to the guardian and the court.
In such a case, if a person dealing with the attorney-in-fact in purchasing or mortgaging a parcel of property owned by the principal and the title examination reveals the pending guardianship proceeding with those kinds of allegations contained in the petition, it is arguable that this is sufficient to jeopardize a claim by such person dealing with the attorney-in-fact that he or she continued to do so “without actual knowledge of adverse claims” and “in good faith.” The substance of the allegations would be that the principal, if she was not incompetent, were revoked the power of attorney, that the attorney-in-fact was not acting with “the utmost good faith and absolute loyalty” required of all fiduciaries, Gagnon, supra, 39 Mass.App.Ct. at 154, 654 N.E.2d at 60, and that the moment the guardian was appointed, he was going to revoke the power of attorney. Having constructive or actual knowledge of such allegations may well distinguish such a case from the “mere knowledge of an appeal” situation discussed in Oakville Development, supra. Consequently, I would not insure the transaction until the guardianship petition was resolved and, if granted, the parties either obtained the consent of the guardian (highly unlikely) or had the guardian consummate the transaction (if he were so inclined) under a license to sell.
Finally, be aware of the Caveat to Title Standard No. 34, which cautions, “As to an instrument executed prior to January 1, 1978, pursuant to a power of attorney, the power is terminated by the death, mental illness or other disability of, or revocation by, the principal.” Implicit in this Caveat is the observation that, prior to January 1, 1978, there was no statutory or common law provision for conclusive reliance on an attorney-in-fact affidavit by even a bona fide purchaser acting in good faith.
The good news is that the use of powers of attorney in real estate transactions was much less prevalent back then, so you shouldn’t encounter those situations very often. Even if you do, if you don’t see any other complications in the chain of title, such as a death certificate, probate, guardianship or conservatorship or some later court challenge to the transaction because of the death or incapacity of the principal not shown of record, you are probably safe in relying on the passage of time without such a challenge. One would expect that, more than a quarter century after the passage of G.L.c. 201 §50, should a challenge to the transaction occur now or in the future, other legal principles, including estoppel, equitable defenses (such as laches), adverse possession, etc., would assist in protecting a bona fide purchaser and his or her successors in interest from any challenge to a title because of an unknown termination or revocation of such a power of attorney. However, as with any other issue involving a title, if you have any doubts as to how to proceed in one of these situations, feel free to call one of us in the legal department.
1 Gary’s article, entitled “Powers of Attorney,” which appears on pp. 8-10 of The Massachusetts Focus, Vol. 2, No. 4 (Fall, 2003), is well worth re-reading any time you feel you need a refresher on these basic principles. [Back to Text]
2 In the Gagnon case, the attorney-in-fact had engaged in self-dealing by transferring, for nominal consideration, the principal’s (her dad’s) 184-acre farm to herself as trustee of a trust that she created, albeit with dad as the lifetime beneficiary, and this was done within a day or two of her learning about a purchase and sale agreement that had been entered into between her dad, who was still competent at the time, and a third party. At the lower court level, the daughter had relied on the language of c. 201B, §5 in arguing that her self-serving affidavit was conclusive even though (1) she was engaged in self-dealing and (2) she knew about the purchase and sale agreement and transferred the property to herself as trustee of the trust specifically to thwart the consummation of that sale. The lower court accepted the argument. The Appeals Court did not and felt the need to mention it even though the daughter abandoned that argument during the appeal. [Back to Text]
3 Such an appointment will still revoke a non-durable power of attorney, however. Id. [Back to Text]