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The Power of Attorney: Dangerous but Useful

A Power of Attorney is a document authorizing one person to act for another. In real estate transactions, a Power of Attorney is often used when one of the parties is out of town and wants someone else to sign the closing documents on his behalf.

The Power of Attorney is a very useful device. However, it can also be a very dangerous device because it can empower one person to deal with another person's assets in ways he may not agree with, or even to enrich himself at the other person's expense by self-dealing. There are also some tricky rules that govern the validity of a Power of Attorney. Before you give someone your Power of Attorney, and before you agree to act on behalf of someone else pursuant to a Power of Attorney, there are a few things you should know.

The Parties
A Power of Attorney involves two parties: the person who signs it (the principal), and the person to whom it is given (the attorney-in-fact, or agent).

Powers of Attorney can be general or special. A General Power of Attorney gives the agent the power to act on the principal's behalf without limitation; in other words, the agent can do anything on behalf of the principal that the principal has the power to do for himself. A Special Power of Attorney, on the other hand, gives the agent the power to do only the things specified in the Power; for example, to buy or sell a specific parcel of property at a specified price. Obviously, you should be very careful about giving anyone a General Power of Attorney. In most cases, a Special Power will get the job done with much less risk.

Generally, a Power of Attorney continues in effect until (a) it is revoked, (b) it expires by its terms, or (c) the principal dies or becomes legally incapacitated or incompetent at which time it is automatically revoked. Even if it is revoked, it continues to be effective as to third parties who do not know it has been revoked. Therefore, it is usually a good idea to put an expiration date in the Power so that it does not continue for years if you should happen to forget to revoke it.

There is a particular kind of Power designed to survive the disability of the principal, known as a Durable Power of Attorney. This is useful if the principal wants the agent to have the power to act on his behalf if the principal should become incapacitated.

Special Requirements
Many states have special statutes governing Powers of Attorney, so it can be risky to use a standard form or to copy one from someone else. Some states require a Power of Attorney to be signed by a witness and some states require a Power of Attorney to be notarized by a notary public. Sometimes the Power must contain certain specified language to be enforceable.

How to Sign
A constant source of confusion arises from the way a document should be signed by an attorney-in-fact. Here is the way an attorney-in-fact ("Al Agent") should sign for his principal ("Peter Principal"):

Peter Principal, by Al Agent as his attorney-in-fact

A Power of Attorney is a useful but potentially dangerous instrument. Be very careful when granting a Power or agreeing to accept one from someone else.

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