A new law that became effective on May 31, 2005, changes the scope of the disclosure requirements for durable powers of attorney and provides relief for most real estate conveyances recorded in the last 18 months under powers of attorney that failed to comply with the disclosure requirements then in effect.

A “durable power of attorney” is defined in New Hampshire by RSA 506:6, I, as a power of attorney “which contains the words, ‘This power of attorney shall not be affected by the subsequent disability or incompetence of the principal’ or words of similar import . . ..”  A durable power of attorney may be either general or limited: a general power of attorney is one that authorizes the agent to act in all matters with the same effect as if the principal were acting on his or her own behalf, while a limited power of attorney is any power of attorney that is less than general, i.e., that restricts the authority of the agent to only certain specified transactions.

Durable powers of attorney were first expressly allowed in New Hampshire in 1985, when RSA 506:6, I, was amended to include the definition quoted above.  Since that time, such powers have been increasingly widely used by estate planning attorneys to give clients the option of having a relative manage their affairs in the event of an accident temporarily affecting their capacity, or in anticipation of or during a period of gradually declining physical or mental ability, in either case without the necessity of instituting a formal guardianship or conservatorship.  Attorneys handling real estate transactions also found them useful in cases where it was inconvenient for a seller to attend a closing in person; unlike the situation with a standard power of attorney, there was no need to obtain any statement or verification from the agent or other person at the time of the closing that the principal was at that time still alive and not disabled or incapacitated physically or mentally.  Such a statement or verification is often required for purposes of issuing an opinion or title insurance certifying or insuring that the conveyance by the agent was authorized and conveyed good title.  Because of this element of convenience, many real estate practitioners began adding the statement of durability to their standard forms of power of attorney, both general and limited.

Concern Over Abuse Leads to Amendment

In 2001 the New Hampshire Department of Health and Human Services (DHHS), out of a concern that in some cases agents were or might be abusing their authority under durable powers of attorney, especially in making gifts to themselves or other relatives, proposed legislation that was introduced as House Bill 703.  After extensive debate and amendments in both houses, the bill was eventually enacted into law as Chapter 257, amending RSA 506:6 and 7 to add two main elements.  First, it provided that an agent under a durable power of attorney was not authorized to make gifts of any kind, to the agent or to others, without explicit authorization in the power of attorney (RSA 506:6, V).  Second, it promulgated two optional warning statements – one to be read and signed by the principal, and one by the agent – that could be added to any durable power of attorney (RSA 506:6, VI and VII); and provided that if a durable power of attorney contained both such signed warnings and also explicitly allowed any gifts, then there would be a presumption of validity in favor of any such gifts later made by the agent, in the event of a court challenge by the principal or any other person (RSA 506:7, IV).

In 2003, again at the urging of DHHS, the legislature passed further legislation strengthening RSA 506:6 and 7 to provide increased protection against abuse of durable powers of attorney by agents.  House Bill 798 was enacted as Chapter 312, and among other things, it made the two warning statements to be attached to durable powers of attorney mandatory, rather than optional, effective January 1, 2004.  Specifically, in regard to the prescribed warning statement to be signed by the agent, the law provided: “An agent shall have no authority to act as agent under the power of attorney unless the agent has first executed and affixed to the power of attorney an acknowledgment in substantially the following form . . ..”  The effect of this change was to presumptively invalidate all actions taken by agents after January 1, 2004, under durable powers of attorney that lacked the two warning statements.

Unfortunately, in part because this change in wording was only a small part of a bill dealing much more extensively with other parts of the power of attorney laws, the change was not noticed by all attorneys practicing in the real estate area.  Accordingly, many of them did not modify their durable power of attorney forms to incorporate the new required warning statements, but continued to use their old forms for real estate closings, thus rendering the titles of buyers and their mortgagees defective for lack of a properly authorized conveyance.

The Problem of Defective Titles

This problem of defective titles came to the notice of the Real Property Section of the Bar Association late in 2005, when section members brought it up for discussion at one of the monthly section meetings.  After considering several alternatives, the section decided that the best way to deal with the problem was to propose further legislation to limit the effect of the new durable power of attorney requirements on the passing of title in two major categories of real estate sale transactions that accounted for the bulk of all sales: namely, those sales where a durable limited power of attorney was used; and those sales where the grantee was an apparently unrelated third party, reasonable consideration was paid, and there was no apparent fraud or undue influence.

Although the real property section decided on a legislative strategy late in the 2004-2005 session, the legislature was receptive to the request.  Rep. Tara Reardon, herself an attorney practicing in the real estate area, offered to try to get a late bill introduced through the House Commerce Committee, of which she was a member.  I drafted the bill along the lines discussed in the real property section, and Rep. Reardon, with the help of Diane Vickers from the New Hampshire Bankers Association (who were quite interested in helping their members cure any defective mortgages that might have resulted from use of incomplete durable powers of attorney) discussed the proposed bill with the Chair of the House Commerce Committee, Rep. Sheila Francoeur.  Ms. Francoeur decided the bill was important enough for her to sponsor it personally, and proposed it as an amendment in toto to another real-estate-related bill, House Bill 348, which was at that time about to be given an “inexpedient to legislate” recommendation by the Commerce Committee.

HB 348 Becomes Law

May 31, 2005

At the recommendation of the Commerce Committee, the full House passed House Bill 348 in its amended form, the Senate followed suit, and the governor signed the bill into law on May 31, 2005, as Chapter 71, to be effective immediately.    

Under RSA 506:6 and 7 as amended by Chapter 71, durable powers of attorney are still required to have attached to them the two prescribed warning statements, one signed by the principal, and the other by the agent.  Lack of either required statement still subjects any purported gift or other transfer made under a durable power of attorney lacking one or both of the required statements to an unfavorable presumption in the event the gift is challenged in court.  These elements of the law are still considered to constitute important protections against abuse of durable general powers of attorney by agents.

However, RSA 506:6, VI and VII now effectively provide that the two warning statements do not have to be attached to durable limited powers of attorney – i.e., those “limited by [their] terms to a specified transaction or series of transactions” (see definition of “durable general power of attorney” in RSA 506:6, X (b)) – but only to durable general powers of attorney.  RSA 506:6, XI further provides that durable limited powers of attorney executed before the effective date of Chapter 71 shall not be deemed invalid because of failure to have the required warning statements attached.  Chapter 71:1, I contains a statement of legislative intent to support this retroactive validation of previously invalid durable limited powers of attorney, by declaring that the mandatory warning statements were never intended to apply to durable limited powers of attorney, but only to durable general powers of attorney, which were considered “more vulnerable to possible misuse.”