Every other day, we have been coming across cases where fraudsters are using Power of Attorney for creating mortgages. Bankers and other financial lenders are most vulnerable to mortgage related frauds. Therefore, Staff working in the loan and advance departments of banks and financial departments shall be vigilant at the time of documentation and may follow these general guidelines while accepting Power of Attorney for creation of mortgage.
- If both the owner of the property (principal) and agent are residing in the same place POA is not required. Therefore the reason given for giving a POA shall be acceptable to the lender.
- Usually, Property developers require POA in their favour. In the case of property developers, the POA will also have the authority to borrow besides the mortgaging properties of the principal. In such cases, loan documents should be signed by the POA (developers) in the capacity of an agent on behalf of the owner but not as a borrower.
- POA should contain specific power/authorization that POA holder can mortgage the properties mentioned in the schedule therein and also register the same whenever required. The POA should also contain a ratification clause whereby the principal agrees that all acts, deeds, and things lawfully done should be construed as the act of Principal and his undertaking to ratify and confirm all such acts done by the POA holder.
- The POA produced should be duly registered before the sub-registrar’s office within whose jurisdiction the Principal resides / property is situated.
- POA should be irrevocable. If there is no mention of revocable or irrevocable in the POA, such POA is treated as revocable. Care should be taken in such cases and ensure that POA has not been revoked from the Sub-registrar’s office where POA was originally registered. However, subsequent revocation of POA by the principal, will not affect the transactions done prior to such revocation.
- On the death of the Principal, the POA gets automatically canceled, even though it is an irrevocable POA. So it is necessary for lenders to ensure that the Principal is alive on the date of creation of the mortgage. It is also advisable to write a letter directly to the principal (owner of the property) for confirmation of POA issued and mortgage formalities may be completed only after receipt of confirmation.
- It is a normal practice that bankers take up with the owner of the property to confirm that he/she had executed the POA as claimed/produced by the POA holder and such power of attorney issued is still in force.
- The lender should ensure that the POA holder has not breached any of the specific conditions mentioned in the POA. Any breach of a condition of POA may terminate the authority given and the principal will not be liable to the extent of such breach.
- More precautions to be taken if the POA holder is borrowing in his personal capacity and offering a property as security to which he is the POA holder. This is because the chances of fraud are more in this type of loan. In such cases, he will sign the loan document as a borrower in his individual capacity and sign the guarantee document and create a mortgage of the property as an agent of the owner notifying that he is executing the documents on behalf of the owner. Here, the lender must ensure that POA contains a specific clause empowering /authorizing the agent (POA holder) to give a personal guarantee on behalf of the principal (owner).
- The Principal should have the contractual ability to issue a power of attorney. The power of attorney issued by the minor, insane person, or insolvent person is void ab initio.
- At the time of closure of the loan, the title deeds cannot simply be handed over to POA. It has to be verified that POA is still in force and powers available to return the original title deed to POA.
Other important points to be kept in mind while accepting an immovable property as a security:
- Legal opinion about the title of the property should be obtained from one of the panels advocates. Parent documents will have to be insisted on by the Principal/POA holder. There are a number of cases where the advocate has verified only photocopies of Parent title deed and POA. When the account becomes NPA and the bank initiates the recovery process, it was too late to know that the documents produced mortgage created by handing over fake documents to the lender. Therefore original title deed of all prior documents should be verified by the advocate and he has to certify that the original documents are verified by him. The original title deed once verified by the advocate should be directly collected by the branch (Not through the borrower). Probability is more when the borrower has purchased through a POA holder and prior title deeds are not available with him. It is advisable to avoid such a transaction.
- The schedule of the property should be fully described with Survey No. Door No. Street, locality, area of the property, boundaries, registration district, etc. From the schedule, it is important to confirm direct access is available to the property to be mortgaged. Lest taking possession of the mortgaged property in the recovery process is becomes difficult when such property is surrounded by others’ properties and no direct access to reach the specific property.