Power of attorney – the advantages and risks involved

Power of attorney - the advantages and the risks involvedFor prospective holiday home buyers or property investors, having somebody take care of your transactions can be really nice and easy. Many a time, when the buyer is geographically located far away from the destination where he wants to buy a second home, getting a representative becomes almost necessary. Here it almost becomes a necessity for the buyer to nominate a person of his choice and execute a power of attorney (PoA)in his name.

In the case of NRIs, most property developers ask for a power of attorney to take care of issues related to purchasing a property in India. NRIs can actually give PoA to a resident in India to buy a property of his (the NRI’s) choice in India.

The first and foremost advantage of executing a PoA is that you don’t have to come down to the site office to sign documents. You can just send a representative with the power of attorney and that person can sign the contract and do the necessary documentation for you.

What exactly is a Power of Attorney:
Before we discuss the advantages and disadvantages of using a power of attorney, one must first understand the exact nature of this concept. Power of attorney is a document that gives a particular person of choice the authority to act on the buyer’s behalf for a specific period and matter depending on what is stated on the paper. This means that another person can sign documents for the buyer and make decisions on the buyer’s behalf. The buyer who gives the power of attorney is often called the executant or principle, while the grantee is called the attorney or sometimes the agent.

For NRIs, incidentally, most legal experts actually recommend that an NRI gives a Power of Attorney to a resident Indian who can complete all the formalities including execution of agreement of sale, registration, possession, to execute all deeds, mortgages, contracts, lease and all other matters related to managing the property.

However legal experts opine that at any given time, it is better to give a specific power of attorney to a person of choice and restrict the PoA to a single action such as only purchase or only for lease.

In case an NRI gives a PoA, the same should be executed on a stamp paper or as per the requirement of the nation where the PoA is being executed and must then get the PoA attested by any authorized official of the Indian Embassy/Consulate/Trade commissioner in that nation.

Types of Power of Attorney:

Based on the powers invested by the executant or principle on the attorney, the document can be categorized into:

 (a) General power of attorney and (b) Special power of attorney.

The general power of attorney is usually a document that allows an agent to act on behalf of his principal for more than one matter, while, the special power of attorney is executed to give an agent the power to complete a specific job. The power of attorney ceases to apply once the job is complete.

For instance, one can give a special power of attorney to a person of choice to sell a plot of land in Delhi and purchase a villa in Goa. But for a general power of attorney, there is no expiration date unless otherwise specified.

A general power of attorney commonly allows the attorney to handle the following types of transactions for the executant:

(i) Buying, managing or selling the property
(ii) Banking transactions
(iii) Taking a home loan on the property
(iv) Purchasing property insurance
(v) Settling claims
(vi) Entering into contracts related to the property
(vii) Depositing taxes on the property

Revoking a Power of Attorney:

Contrary to the myth which many people believe, once the power of attorney is executed it can be revoked easily. As the principal or executants, you can revoke the power of attorney at any time. Moreover you and the agent can mutually agree to revoke the power of attorney as well, or you and the agent may mutually agree to revoke the power of attorney once the goal of giving the power of attorney is complete. Meanwhile, the power of attorney is automatically revoked in the event of death, bankruptcy, and insanity of the principal.

Risks/Disadvantages involved in executing a Power of Attorney: 

Despite all its benefits, the power of attorney can also be a bane when not done the right way and when put into the wrong hands. Giving a power of attorney to someone to buy a property on your behalf means that you are basically telling people who read the document, that you are giving the agent full rights to sign for you and agree or refuse something on your behalf.

If the agent turns out to be corrupt, then any transactions that he or she handles, is at risk for fraud.  Although this is a very convenient thing to do, the fact that it can be misused means that only a few ever use it. Giving that kind of power to one person can be very risky even if you plan to monitor all the transactions made under your name.

Here are some of the disadvantages of executing a power of attorney:

  • The agent’s competence at the time of writing the power of attorney might be questioned later.
  • Some banks require that the document be written on special forms, thus making the process of getting bank finance lengthy. There are many financial institutions which refuse to recognize the power of attorney after six months to one year.
  • If the powers granted are too general, the agent could abuse them.
  • The agent could turn out to be untrustworthy.

Conclusion:

As a person who is empowering another person to act on your behalf, you must understand that this is a very serious matter and should be handled with care. It is always advisable to give a power of attorney when absolutely necessary to do so. The buyer must understand that your agent will act for you and his actions will have legally binding implications for you and as the executant of the power of attorney, you will not be able to walk away from the consequences arising from any actions of the agent you choose.


About Dhruv Baruah
Dhruv Baruah is the Editor of Holiday Home Times. He can be contacted at dhruv@holidayhometimes.com

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  1. The person who creates a power of attorney, also known as the “grantor”, can only do so when he/she has the requisite mental capacity. Suppose the donor loses capacity to grant permission after the power of attorney has been created

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