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Agreeing to Dissagree With Your Power of Attorney

Fraud experts have a saying. The high tide of a booming real estate market hides the rocks beneath.

LOS ANGELES -- (Aug. 30, 2007) -- While investigators sift through mountainous paper trails trying to figure out how mortgage fraud has cost American consumers billions of dollars, a new tool is being exposed that has the potential to defraud home buyers with greater ease than ever. That tool is the limited power of attorney.

Unlike schemes in which a borrower never gave his consent, this fraud can be perpetrated with the home buyer’s tacit approval. With this latest tool, an unscrupulous broker could alter terms, raise rates, include onerous prepayment penalties and a host of other nightmarish changes. And the beauty of the scheme is that borrowers don’t have to know to approve.

How does that work?

A limited power of attorney is an agreement that gives a designated person authority to sign documents related to a specific loan on behalf of the borrower. While common in many commercial transactions, they’re just beginning to be used in residential real estate closings.

Limited powers of attorney should prohibit later changes to terms, but predators hoping to take advantage of vulnerable people such as immigrants or the elderly could draft documents down the road that allow alterations. Consumers are at much greater risk of having unauthorized or undisclosed terms show up in the final package.

A number of title companies and lenders are using them to close mortgages Online in order to cut costs and streamline the closing process. But fraud experts aren’t using terms like “cost cutting” and “streamlining” to describe the deal. They call them a “license to steal.”

A limited power of attorney is a sneaky weapon in the hands of a corrupt insider. It’s not really fraud if the borrower has given his consent to someone to handle the closing process from beginning to end, is it? There’s a tremendous capacity for fraud when a dishonest person has the power to make changes to a loan package without seeking the approval of a borrower along the way.

Even if changing loan terms is allowed under the agreement, at the very least it’s dishonest and unethical. It’s fair to label a bait-and-switch tactic that could leave a borrower paying thousands more a month as fraud even if the law doesn’t classify it so. If shady mortgage brokers are willing to use that tactic when face to face with a consumer, imagine what will happen if Online closings using limited powers of attorney become routine.

The risk of using these documents is that consumers are obligated to abide by the terms of whatever is signed on their behalf, whether they like it or not. Borrowers could refuse to approve the final terms, but why would they if they don’t suspect they’ve been changed?

According to a 2007 FBI report, mortgage fraud is pervasive and growing. Based on existing investigations and mortgage fraud reporting, 80 percent of all fraud losses involve collaboration or collusion by industry insiders, the agency reported.

If the FBI is focusing its efforts on fighting the corrupt insiders, it makes little sense to popularize a tool that represents a blank check.

If the abuses in the mortgage and real estate industries prove anything, it’s that consumers should be wary of whom they trust.

Consider foreclosure rescue scams. Operating in every state, corrupt foreclosure assistance companies are notorious for tricking consumers on the brink of losing their homes into signing away their rights. One of their common tools is the power of attorney.

Foreclosure fraud has become so rampant that many states are moving quickly to crack down. Since 2006, nine states have enacted laws that explicitly prohibit foreclosure consultant from using a power of attorney for any purpose other than examining documents; and seven other states plus the District of Columbia are considering similar measures.

Fraud is already crippling the real estate and mortgage industries, and is costing Americans their homes. In a damaged market where the tide is ebbing lower, we ought to be championing measures that protect consumers instead of handing potential predators blank checks.

SOURCE: National Notary Association
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