Equity release and power of attorney – a successful pairing or difficult bedfellows?

This article is written by Peter Barton, partner and head of equity release at Ashfords. It first appeared in the OneFamily newsletter which advisers are invited to subscribe to by clicking here.

There is a widely held myth that equity release cases involving power of attorney (where the borrower or one of the borrowers has lost mental capacity) are difficult to complete and take a lot longer than other cases.

In reality a power of attorney case shouldn’t take any longer than a standard case. What are the pre-requisites to proceed under a power of attorney?

The borrower has to have lost their mental capacity

If they are just physically frail or do not like dealing with paperwork, I am afraid they cannot proceed under a power of attorney – however helpful the family think they are being. The lender’s solicitors will insist that the borrower signs.

At Ashfords we are happy for the borrower’s family to be present during the meeting with the frail client, albeit we will ask the family to leave at some point of the meeting to ensure we take independent uninfluenced instructions. If there is any doubt as to mental capacity we will want this confirmed by a medical professional.

The loan must only be for the borrower

I am asked on many occasions if the attorney can make gifts of the release (or even add a spouse/partner on to the deeds for a mentally incapacitated borrower). The clear answer is ‘no’; if any gifts are intended then the attorney would have to apply to the Office of the Public Guardian (OPG) for permission to make the gift and the answer (even for inheritance tax planning) will typically be ‘no’.

Purposes such as repaying debts such as credit cards and mortgages are fine, as is improving the property or adapting it for them. This applies even if the incapacitated borrower is in a residential home.

The power of attorney cannot appoint the co-borrower

One borrower cannot sign for both parties. There must be someone else appointed in the document and if several people are appointed then they all have to be identified and communicated with throughout the process (and give their consent). In the legal process only one attorney needs to sign.

The power of attorney must be valid

Whether it is the old form (an Enduring Power of Attorney) or the more recent forms (Lasting Power of Attorney), then they must be correctly completed and bear the stamp of the Court of Protection/OPG.

If you have satisfied the above and are ready to place the case, what is the next step for you?

  1. The attorneys must be noted on the application form and identification taken for them and they will have to sign it, along with any borrower who retains their mental capacity.
  2. When instructing your chosen solicitors, they will need from you the contact details of the attorneys (all of them) and identification for the attorneys and the incapacitated borrower (if they have any).

At this point you hold your breath; as the case hits the murky and grey world of the lawyers, with you left hoping it will come out the other end, issued with happy clients. Is there anything that we do differently to a standard case?

  1. Obviously we need to write to the attorneys and identify them, but the main item we need from them – which often causes consternation and angst – is that we are legally required (by the lender’s solicitors) to hold the original power of attorney on the day of completion. Otherwise they will not release funds to us. This is a requirement of HM Land Registry so please do not berate the lender’s solicitors. If you are able to, manage your customer’s expectations and ask them to obtain the original power of attorney this can be handed to one of our travelling solicitors when they visit to sign the papers. People often baulk at this, but we have to give a legal undertaking that we are holding the original. This will be returned to the family as soon as the charge has been registered at the land registry and we are discharged from our legal undertaking. We return these by special next-day delivery.
  2. We also have to check with the attorneys that the power of attorney has not been altered or varied and we also have to check the purposes of the loan.

There is of course a huge potential for an equity release case via a power of attorney to be strange bedfellows, and a lot can go wrong. I always recommend that advisers speak with me on these cases prior to lodging an application, to ensure nothing has been missed and that the case runs smoothly to completion.

 To follow Peter on Twitter follow the link @ER_Law.