This column first appeared in the San Antonio Express News on April 24, 2017.
Dear Mr. Premack: I currently have a special and general Power of Attorney from my wife, in order to close on a home equity loan. My bank had recently informed me that they could not close on the loan due to fact that I'm using a POA. I'm retired military and had the POA done at the Judge Advocate’s office in Germany. I wanted to ask if there is a way I can close the loan using a POA or do I need a specific type of POA? – JF
Prior to 1995, home equity loans were illegal in Texas. Texas was the last state in which the homestead was granted very broad protection against creditor’s claims. The banking industry then convinced the Texas Legislature to approve a modification to the Texas Constitution and sold the voters on the benefits of equity loans. Since that vote, both home equity loans and reverse mortgages have been legal in Texas.
However, unlike most states, the legal authorization for equity loans is found in the Texas Constitution. Changing the Constitution is a formidable task, much more difficult than making a change to a regular statute.
With that background, we come to your question: can you, as Agent, use your wife’s POA to close on an equity loan? That question was answered by the Texas Supreme in Finance Commission v. Norwood. The court determined that the Constitution forbids using a POA to close on an equity loan unless that POA was executed (signed) at the lenders’ office, at an attorney’s office, or at a title company’s office.
It seems that your bank is taking that court decision quite literally, which is understandable from their perspective. If they allow you to use the POA to close on the equity loan, and later it is determined that the closing was illegal, then they are embroiled in a legal battle to recover the loan balance. The bank is construing that Judge Advocate’s office in Germany is not “an attorney’s office” as required by Texas law.
Thus, the bank won’t allow you to execute the equity loan on behalf of your wife using the legally inadequate Power of Attorney. The Power of Attorney cannot, under the bank’s interpretation of the Norwood decision, be used to close on the equity loan because it was not signed by your wife in a legally approved location.
What can you do? You could argue with the bank. Maybe an officer higher up the ladder will change the bank’s policy, but that outcome seems unlikely. You could have your wife sign a new Power of Attorney in one of the legally approved locations and provide proof to the bank of its origin. However, if she is still in Germany that may be an impractical solution. Or you could wait to close on the loan until your wife is back in Texas, avoid acting as her Agent under the Power of Attorney, and have her sign the equity loan personally. While it may cause some delay, that tactic is certain to appease the bank.
Please note that equity loans - especially reverse mortgages - have some pros and some cons. They can free up your home’s equity but are also often expensive to close and must always be paid back with interest. If you can get an unsecured loan rather than a loan secured by a lien on your home, then you will not be putting your home at risk of foreclosure should you later be unable to repay the loan.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.Premack.com.