A Power of Attorney (POA) is either limited to a specific transaction and called a Limited Power of Attorney (LPOA) or is not limited to a transaction and is called a General Power of Attorney (GPOA). It is common in real estate transactions to use a LPOA for the day-to-day administration of the activities of the property and for signing the closing documents when the property is sold.

The usual reason for the owner of a property to give a POA to someone is because he can't be onsite where the property is located or can't come to the closing. Even with a LPOA the person given this power can issue the disbursement check to himself which makes POAs risky if the authorized agent takes advantage of the situation.

Attorneys are so aware of this issue that they will seldom allow a client to give them a POA even for just signing closing documents. There is always the potential liability that the grantor of the POA has a flash of hindsight and blames the administrator of the POA for doing something wrong or not enough of the right thing.

A POA is a flag for attorneys and should be for any investor going to a closing where the actual seller isn't signing the closing docs for a couple of reasons. I know there are legitimate reasons for a power but generally they cause more problems than they solve. First, the grantor of the POA can revoke the LPOA at any time and you have little or no recourse with the person you are dealing with.

It is likely you wouldn't know it has been revoked until well after you close. POAs are frequently fraudulent or so says the person who is supposed to have signed them. Despite the POA being filed in the public record after the closing, it can still lead to agony if it is claimed to have been cancelled or is actually fraudulent. Think about what happens if you rehab a property and within the statute of limitations (3 - 7+ years), the original seller comes back and says the transaction was fraudulent. Your title insurance may cover some of you loss but it depends on the "Exceptions" that were written into the policy. You will not be reimbursed for the repairs you made.

While it is more common to find fraudulent Quit Claim Deeds but POAs are as easy to fake. Usually, POAs do not require two witness's signatures or even a Notary signature in some states. POAs also expire automatically if the grantor passes away. Closing agents have all the rights in the world to get "nervous" when they hear a party is coming to closing using a POA. What we do is to have the original seller sign anyway and do this by having the documents mailed or delivered to the seller for signing and notarization.

In summary, whenever a POA is used for any reason, be skeptical. The deal may be very lucrative, but if it sounds to good to be true don't be overcome by greed. I actually use a finger print card for the seller when a POA is involved. The ink for the card is also designed to get a sample of the person's DNA so there can never be a question of who signed what. When I show the fingerprint card to the signatory on the POA their attitude usually changes dramatically and they cooperate in getting the original seller to sign the closing documents.