In Forbes v. Platinum Mortgage, Inc., No. 1180985, 2020 WL 746533 (Ala. Feb. 14, 2020), the Alabama Supreme Court upheld the validity of a home mortgage. There, the husband borrowed $175,000, securing the loan with a mortgage on the couple’s home. The husband signed the mortgage for himself and signed on behalf of his wife – pursuant to a Power of Attorney from his wife. Later, the wife was declared incompetent and ultimately died. The conservator sued, seeking to nullify the loan and contending that the Power of Attorney was forged.
The notary testified that the wife did sign the Power of Attorney and that she appeared competent when she signed it. The Court explained that the Alabama Code very clearly protects a party relying upon a properly notarized Power of Attorney, absent actual knowledge of falsity. The Court quoted Ala.Code §26-1A-119 which states that a “person that effects a transaction in reliance upon an acknowledged power of attorney without actual knowledge that the power of attorney is void, invalid, or terminated, that the purported agent’s authority is void, invalid, or terminated, or that the agent is exceeding or improperly exercising the agent’s authority is fully exonerated….” The Court then explained the public policy reasons:
The Court notes that § 26-1A-119(c) was taken nearly verbatim from the Uniform Power of Attorney Act. The Uniform Comment to § 26-1A-119 states that it “places the risk that a power of attorney is invalid upon the principal rather than the person that accepts the power of attorney.” Thus, lenders and other businesses can rely on an agent’s signature, which has been authorized by a power of attorney, to complete any transaction as if the principal were present and supplied his or her own signature. Only if the person effecting the transaction for a lender or other business has actual knowledge of the invalidity of the power of attorney can the transaction be set aside
Both lenders and title insurers should welcome this holding. The Alabama Supreme Court has made clear that lenders do not bear the risk if the statutory procedure is followed. This is what the Legislature intended. However, lenders should be careful to insist that these statutory procedures are followed to avoid problems in the future.