Customers of Insignia Title are advised that effective immediately, this agency will not accept any letter, regardless of the date, from Steven J. Baum, P.C. which sets forth payoff terms or stating that the firm will be canceling notices of pendency, discontinuing actions and vacating judgments for pending foreclosures in connection with any title insurance to be issued by our agency.

It has always been our understanding that ECBs must be cleared if they are docketed against the premises during the lien period regardless of the named judgment debtor, or are against the name of a party in title during the period of ownership, regardless of the address of the violation.

There has been some confusion among lawyers, and even some other title agencies, about the effect of these liens. Some have been under the impression that the lien was effective only if it was on the head against both the name of the owner and the address. This has never been our position at Insignia, and we have now heard it “on the street” that the cash-strapped City of New York has recently begun a more active crackdown on enforcement of these liens.

One way to avoid having ECB liens on other premises affecting a parcel, would be for the ownership of each parcel to be in a single purpose entity (SPE). The use of an SPE type of ownership would make it so that ECB liens, or any judgment or lien affecting another property, including, for example a large money judgment for a slip and fall on a sidewalk at that other property, won’t be an issue at a sale or refinance of a different property, even if the beneficial owner is the same. Considering the ease and flexibility of the New York LLC statute, the avoidance of dragging in ECBs and other liens that affect other properties is another advantage of keeping different properties in separate SPE ownership.

Back in the 1960’s, Congress created the Interstate Land Sales Full Disclosure Act (15 U.S.C. §§ 1701 et seq.), (commonly acronymed as “ILSA” or the less-pronounceable “ILSFDA”) as a response to the unscrupulous practices of land speculators who were subdividing and selling undevelopable desert and swamp lots in faraway places like Arizona and Florida, to unsuspecting out-of-state purchasers. These lots usually had no access to roads, utilities or any of the promised amenities, and when purchasers actually went to see their lots, they would discover the fraud – in most cases too late to obtain recourse or without any recourse at all.

If we fast forward to 2008, just after the real estate bubble burst, several New York lawyers used existing legal precedent to breathe new life into what might otherwise appear to be an arcane statute out of history.

These lawyers represented purchasers of new construction and rehab luxury condominium units in New York who had signed contracts at historically high prices, and when the bubble burst, discovered that they had “buyer’s regret.” Prices dropped so dramatically that the possibility of just walking away from half-million dollar down payments actually looked attractive, so some of them just went ahead and did just that.

Purchasing an alternative unit or property elsewhere, their lawyers turned toward the idea of recovering down payments and possibly even obtaining damages awards – and by making use of ILSA provisions they have found some success in situations that fit the statute.

Condo developers in these cases had not dotted their “i’s” and crossed their “t’s” in compliance with ILSA’s statutory requirements and HUD regulations.

Perhaps they or their counsel were unaware of ILSA. Perhaps they just did not want to go through the aggravation and expense of going into full compliance. Perhaps they thought, incorrectly, that their project was exempt from the requirements.

The Southern District has been a recent hotbed of ILSA activity related to condominium developments, and these cases are illustrative of what happens to condo developers who flout ILSA with or without any intent to do so.

In the case of Bacolitsas v. 86th & 3rd Owner, LLC, 09 Civ. 7158 (PKC) decided on September 21, 2010, Southern District judge Kevin Castel held in favor of purchasers at the Brompton Condominium. When the bottom fell out of the market, the purchasers attempted to renegotiate their $3.4 million contract price down by $600,000. The developer refused, and the buyers decided to cancel the contract.

Their lawyers found a way to get the down payment back, using ILSA, and the court agreed, ruling that:

“the Act permits a purchaser to revoke a purchase contract–”for good reasons, bad reasons or no reasons”–in the event the terms do not provide “a description of the lot … which is in a form acceptable for recording … in the jurisdiction for which the lot is located.”

Providing a recordable legal description for a condominium unit at a point in time when the building is in the planning stages can be an interesting job, particularly since the declaration is not nearly ready for recording, and it is possible that the exact percentage of common elements has not yet been assigned.

Because the problem with providing a lot description was a problem with condominium developers, the federal Department of Housing and Urban Development (HUD) permitted developers to simply describe a unit as “Unit X in that certain condominium established by the Declaration of Condominium for Always Built Collassal Condominium to be recorded in the Office of the (Recording Officer) of (county name) county,”

We can’t tell from the Brompton decision whether that would have been sufficient to satisfy the statutory requirement of recordability, since that would ordinarily be decided in accordance with state law, and the New York Condominium Act has some relatively clear requirements for condominium descriptions (See Real Property Law § 339-o) – The description of the land would be fairly easy, as would the unit designation and the statement of use. A statement of the common interest, however, would require that this be worked out by the developer early in the process.

In Nu-Chan, LLC v. 20 Pine Street, LLC, No. 09 Civ. 00477 (PAC), decided September 30, 2010, another Southern District judge, Paul Crotty, made it clear that ILSA applies to condominium developers, in granting summary judgment. Two unit buyers at 20 Pine Street Condominium sued to revoke their contracts because the developer did not register the condo with the Office of Interstate Land Sales Registration (“OILSR”) or give a HUD Property Report. The 20 Pine developer completely failed to abide by the requirements of ILSA. The developer’s counsel attempted to argue that ILSA did not apply to condominiums despite many previous cases and federal regulations that indicated otherwise. Judge Crotty made it very clear that condo developments with over 100 units were clearly subject to the registration requirements of ILSA. While there are some exemptions, the developer in this case did not fit into any of them.

In this case, the developer, who was doing a partial conversion of an existing commercial building in downtown Manhattan, argued that the premises was improved, and not a “lot” under ILSA standards. This argument, while creative, was rejected. For the Improved Lot exception to work, the conversion would have had to have been complete.

In Nu-Chan, the developer won a Pyrrhic decision on the issue of the automatic rescission right, which runs after two years – but damages may be claimed under 15 USC 1703(c) for three years from the date the contract was signed.

Our third case is An v. Leviev Fulton Club, LLC, Slip Copy, 2010 WL 3291402 (2010 S.D.N.Y.), which was decided August 10, 2010. In this case, the developer took the position that it was exempt from ILSA under the “two year exemption,” under which it claimed to have obligated itself to complete the project within two years. The Court, looking within the four corners of the contract, used the developer’s own contractual weasel words to hold that the exemption did not apply. In the contract, the developer only “anticipated” closing within two years, so there was no binding exemption. The contract should have had a clear option for the purchaser to withdraw without penalty if the development was not completed within the two years.

While these three cases came from the bursting of the housing bubble, they represent a warning to condo developers and their attorneys to pay closer scrutiny to ILSA requirements. A fifteen unit condominium in Park Slope won’t have an ILSA issue, while a developer with pre-sales of a several-hundred unit development on the East River in DUMBO should be making sure of compliance.

The cases also serve as a possible additional weapon in the arsenal of purchaser’s counsel looking for a way out for their clients who may merely have changed their minds and now want out. If the developer should have been in compliance with ILSA, it may come as a rude awakening.

A few of the “corrections” may spawn further corrections, such as the definition of “Powers of Attorney” in Section 5-1502.j. now *excluding* the documents listed in 5-1501C. The error is that the definition should have been of “Statutory Short Form Power of Attorney” and not merely “Power of Attorney.”

The “Major” was taken out of the “Statutory Major Gifts Rider” making it the Statutory Gifts Rider (SGR) rather than the SMGR.

Spelling, punctuation and formatting errors will not affect effectiveness – the result will be that such scrivener’s errors are to be cured by reference to the statute. This provision may provide a loophole for mischief.

The spelling of acknowledgment was amended to take out the obsolete extra “e” (acknowledgement? Somewhat reminiscent of the obsolete/obsolescent “judgement” (now spelled as “judgment”)

Excluded from the SSFPOA by new 5-1501C as a requirement are: business powers, powers coupled with an interest, powers given to creditors (such as the stock power given to a co-op lender), stock powers , proxies, government form powers, powers authorizing a party to appear or act before a government agency, bank powers, powers relating to business entity governance, condo powers, powers given to real estate brokers, acceptance of process, and powers authorized by other laws. This section caps off with a provision allowing SSFPOAs to be used for these purposes, as well.

Powers allow the creation, modification or revocation of a trust are allowed, except if the action is a “gift” transaction under Section5-1504

The word “arbitration” is replaced by the modern and more inclusive “alternative dispute resolution.”

Gifts under $500 in the aggregate in any calendar year may be made without an SGR. Anything that would exceed $500 requires an SGR

The rules on refusal were changed slightly. It was clarified that third parties located in the state, or “doing business in the state” are covered. The title insurance company exception was narrowed to gift transfers under an SGR that does not have express instructions.

Apparently some recording officers were rejecting recordings where one of many agents had not signed, even if the agent who signed the accompanying document had an acknowledged signature. That abuse by the recording officers will now have to stop.

“Fiduciary duty” has been pluralized under “fiduciary relationship” and contains references to many “duties.”

It is now clear that agents do not have to be individuals. This makes it clear that an attorney in fact can be a corporation or entity. I imagine that instead of naming every attorney in a law firm to act as attorney in fact, with or without special succession rules, it might be simpler to name “Dewey & Cheatham, P.C.” as the attorney in fact.

There have been some changes in the methodology and effectiveness of revocation, though further clarification may be necessary as to the effect of recording. There appears to be a conflict between the idea of record notice and the idea of actual notice.

The biggest change in the statute is a reversal of the insane requirement that the execution of a power revokes any and all prior powers executed by the principal. This was a mistake, and I am glad the legislature fixed this. The corrected provision no states that:

The execution of a power of attorney does not revoke any power of attorney previously executed by the principal.

Powers executed outside the state may comply with New York law or the law of the other jurisdiction. Powers executed in New York by a domiciliary of another state, using the other state’s form, are valid in New York. (However, it’s going to be necessary to ascertain domicile, which may be different than residence, in the event a foreign form is executed in New York for New York purposes).

One impossibility, given the law’s actual effective date of September 12, 2010, is a part of the directive to the Law Revision Commission, which is charged with evaluating the SGR. The initial report from the commission is due on or before September 1, 2010. One might presume that under the circumstances, the commission may be allowed to make its preliminary report at a reasonable later date, though dated as of September 1, 2010, nunc pro tunc.

The final kicker is the effective date and its putatively retroactive effect Since the bill was signed August 13th, it becomes law September 12th (30 days after signing), but on that date it becomes retroactive to September 1, 2009.

While it’s very nice that the legislature is correcting a mistake, the retroactive effect might be legally challenged as unconstitutionally ex post facto (see CALDER v. BULL, 3 U.S. 386 (1798), at least for any Principal who did in fact intend to revoke prior powers by executing an SSFPOA between 9/1/2009 and 9/11/2010.

However, to the extent that the Chapter merely clarifies matters already provided for by the previous statutory patch, the retroactive effect may well be fortuitous.

We’re going to be working to get the new forms up and available as soon as possible.

One of the short cuts involves the commencement of the foreclosure before the paperwork, including the assignment of the mortgage to the plaintiff, has gotten to the lawyer. Courts and referees often miss the lack of standing, resulting in a defective foreclosure that could be set aside. Sometimes the situation has been caught by vigilant judges and the proceedings held up while the lender and its lawyers scramble to comply with the prerequisites that had been ignored.

The secondary market has exacerbated the situation. Some judges, already seeing prerequisites being ignored, have cast a steely eye on the modern practices of the secondary market relating to the ownership of mortgages and the promissory notes that they secure.

In the bygone days of the late 1970’s and early 1980’s (when I was handling foreclosures for local banks and savings and loan associations), aside from FHA and VA loans, most of the residential mortgages that were made and foreclosed were “portfolio loans” made by local savings banks, savings and loan associations and other local institutions. These lenders kept their loan documents in files in their locked vaults, and when the lender delivered a file to its outside counsel to handle a foreclosure, the original note and mortgage would in nearly all cases be provided to the attorney before the notice of pendency was even prepared.

Many of the mortgages being foreclosed today have wound themselves through a secondary market involving remote servicers and assignments to nominee institutions. Often, the beneficial ownership and servicing of the mortgages have been separated. The secondary market has also fueled the development of a market for pass-through bonds to “securitize” mortgages in order to tap the bond market as a source of funds for further lending. The proceeds of the pass-through bonds were then funneled back to fuel additional lending. The frenzy led to a housing bubble,

As borrowers went into default on mortgages they could not afford to pay, the volume of foreclosures increased beyond the capacity of the secondary market to keep up with the paperwork.

What used to involve a careful review of actual loan documents, preparation of assignments each time a mortgage and its note has changed hands, had turned into a largely electronic process that worked best when few mortgages went into default.

I have also seen referee’s deeds prepared in which the referee purports to be conveying on behalf of the foreclosed owner, and not exercising the referee’s power of sale authorized by the judgment of foreclosure and sale. But that is another issue entirely.

Insuring title passing through a foreclosure sale has become a very risky venture, even when the judgment of foreclosure and sale has been signed. Defective foreclosures are defective, even when the court has not caught the errors before rendering judgment.

There have been a number of cases, many emanating from Brooklyn and presided over by Justice Arthur M. Schack, where the increased scrutiny has stalled the process so that plaintiff could provide the proper documentation and proofs.

In one case, Justice Schack dismissed a foreclosure with prejudice and sanctioned plaintiff’s attorneys for commencing an action in which the plaintiff was not the record holder of the mortgage. Wells Fargo Bank, National Association v Reyes, 2008 NY Slip Op 51211U; 2008 N.Y. Misc. LEXIS 3509 (Sup. Ct. Kings, 2008). The decision can be read at:
http://www.nycourts.gov/reporter/3dseries/2008/2008_51211.htm

The Appellate Division, Second Department, has weighed in on at least two of these “lack of standing” cases:

In the first, Wells Fargo Bank, N.A., v. Marchione, 2009 NY Slip Op 07624, 69 AD3d 204 (2d Dept. 2009) – which can be read at:
http://scholar.google.com/scholar_case?case=18293981495281415218&hl=en&as_sdt=2&as_vis=1&oi=scholarr

– the court held that a nunc pro tunc assignment dated only a week after the action was commenced, would be insufficient to allow the proceeding, holding concludes “a retroactive assignment cannot be used to confer standing upon an assignee in a foreclosure action commence prior to the assignment.”

One of the more troubling aspects of Justice Schack’s line of decisions is his difficulty understanding how MERS and the secondary market actually operate. Justice Schack has made an issue over MERS being a nominee, and not having capacity to hold or assign mortgages, and has taken issue with the system under which clerks at the servicer officers are also serving as officers (usually assistant secretaries) of the mortgagees and beneficial holders of the mortgages for the purpose of executing assignments and other documents,

The second of the second department cases seems to address the issue – Mortgage Electronic Registration Systems, Inc. v. Coakley, 2007 NY Slip Op 05478, 41 A.D.3d 674, 838 N.Y.S.2d 622 (2d Dept. 2007)
– the full text is at:
http://scholar.google.com/scholar_case?case=10515743874326631494&hl=en&as_sdt=2&as_vis=1&oi=scholarr

– in this decision, the court held that MERS has the capacity to hold the mortgages and to foreclose in its own name, despite being a nominee for the actual beneficial holders.

Reading these second department decisions together, the solution for lenders and lawyers in a rush may well be that in those cases in which an assignment has not been obtained at prior to the commencement of the foreclosure, a foreclosure could be commenced in the name of MERS (or the other record holder) and then after the assignment has been recorded, the proper plaintiff substituted, provided the MERS agreements permit this.

One situation in which this method won’t work, is where Fannie Mae is involved – a March 30, 2010 Announcement provides that foreclosures referred on or after May 1, 2010 may not be commenced under the name of MERS, where the loan is owned, or has been “securitized” (those “pass-through bonds” we mentioned earlier), by Fannie Mae. The Fannie Mae Announcement SVC-2010-05 is posted at:
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/svc1005.pdf

New York State’s Mortgage Recording Tax has been in the financial news in recent weeks, with the recent decision in Hudson Valley Federal Credit Union v. New York State Department of Taxation and Finance, et al (Gische, J., Sup. Ct. N.Y County, made May 14, 2010, entered May 20, 2010; Index No. 106732/2009).

In that case, which dealt with the entire mortgage recording tax and not only the additional tax, Justice Judith Gische held that federal credit unions are not exempt from the mortgage recording tax, based on the controlling New York Court of Appeals decisions in Franklin Society for Home Building and Savings v. John J. Bennett, Jr., 282 NY 79 (1939), and SS Silberblatt, Inc. v. New York State Tax Commission, 5 NY2d 635 (1959).  These decisions came after and distinguished the New York mortgage recording tax from a similar taxes in other states that had earlier been stricken by the United States Supreme Court (Federal Land Bank of New Orleans v. Crossland, 261 US 374 (1923, regarding an Alabama tax) and Pittman v. Home Owner’s Loan Corporation of Washington, D.C., 308 US 21 (1939, regarding a Maryland tax).

As a result of its success at the trial level, the New York State Department of Taxation and Finance is currently reconsidering its 1986 decision to exempt federal credit unions from payment of the SAMRT (the “Special Additional Mortgage Recording Tax”).

If the reconsideration results in a future imposition of the tax, it is likely that the Department will make the change effective at a date that is not immediately on the issuance of the Tax Services Bulletin announcing the change.

While we await the result of the reconsideration, there will be no change in the usual procedure regarding closings with federal credit unions.

Our closers will continue to take the appropriate affidavits of exemption in duplicate from an officer of the credit union or its attorney, and no SMART will be imposed where “the mortgaged premises consist of real property improved by a structure containing six residential dwelling units or less, each with separate cooking facilities” and the lender is a federal or state credit union.

If the lender is a state chartered credit union, or the lender is a natural person, Tax Law Section 253 (1-a) (a) expressly exempts the mortgage from the SAMRT.

However, there are three different kinds of affidavits – one for state chartered credit unions that converted from federal on or after January 1, 2009, one for state credit unions that have either always been state credit unions or converted from federal credit unions on or before December 31, 2008, and yet another affidavit for federal credit unions.

The original version of the statute only provided the exemption for situations in which the lender was a natural person.  The law was amended in 2009, effective January 1, 2010, amending the statute to add “a credit union as defined in Section two of the banking law.”  This took effect January 1, 2010, and overturned TSB-A-06(1)R, by which the Department of Taxation and Finance decided that mortgages made to state credit unions were not exempted.  See TSB-M-10(1)R – which also points out that there is a different procedure for state credit unions that have been converted from federal credit unions on or after January 1, 2009.

For state credit unions which were formed as state credit unions or were converted from federal credit unions on or before December 31, 2008, the following affidavit requirement is provided:

To claim this exemption from the SAMRT, the state credit union must submit an affidavit to the recording officer at the time the mortgage is presented for recording. The affidavit must be made in duplicate, signed by the mortgagee, and set forth the following:

• the mortgaged premises constitute real property that is principally improved by a structure containing a total of not more than six residential dwelling units, each with its own separate cooking facilities;
• the mortgagee is a state credit union formed under Article 11 of the Banking Law; and
• the mortgage is exempt from the SAMRT imposed by section 253.1-a(a) of the Tax Law.

State credit unions that had formerly been federal credit unions (and converted on or after January 1, 2009) obtained this slightly different treatment by Section 533 of the Laws of 2008, which, rather than amending the tax law provision with regard to the SAMRT, amended Article 11 of the Banking law, Section 486-a – a place one would not be likely to look for a mortgage tax exemption!

The affidavit requirement for a state credit union converted from federal on or after January 1, 2009:

To claim exemption from the SAMRT, the converted state credit union must submit to the recording officer an affidavit at the time the mortgage is presented for recording. The affidavit must be made in duplicate, signed by the mortgagee, and set forth the following:

• Pursuant to section 486-a of Article 11 of the Banking Law, the mortgage is exempt from the special additional mortgage recording tax imposed by section 253.1-a(a) of the Tax Law.

See TSB-M-08(5)R, Special Additional Mortgage Recording Tax Exemption for Federal Unions that Convert to State Credit Unions.

Of course, the state credit union differentiation only makes sense in an historical way – the Department should have rolled everything into the new requirements as of January 1, 2010 rather than keep two separate rules for state credit unions that both result in an exemption from the SAMRT.

Where the mortgagee is an individual, or a federal credit union, the affidavit for exemption of special additional mortgage tax should contain the following:

• Mortgagor and mortgagee names
• Dollar amount of the mortgage
• Location of the property
• Basis for the exemption
• A Federal Credit Union can claim exemption on any type of land, but the individual mortgagee can only claim it on a one to six family dwelling with separate cooking facilities (i.e. not on vacant land “to be improved”).
• Must have a jurat, “sworn to before me”, not an acknowledgment (unless it is signed by an attorney with the statement “being an attorney at law, licensed to practice…, makes this statement on the pains and penalties of perjury”).

To sum up the SAMRT as it relates to credit unions, only the “regular” mortgage taxes are imposed, and these are passed on to the borrower.  There is no SAMRT where the lender is a state credit union since January 2010, or a state credit union that converted from federal on or after January 1, 2009, and there has been no SAMRT imposed where the lender is a federal credit union, since 1986 (though that is now being reconsidered).

If the Department of Taxation and Finance decides in the future that the SAMRT is properly imposed when the lender is a federal credit union, I would expect the decision to be challenged, or at least that the federal credit unions might challenge the anti-pass-through provision of the statute.  There is also the possibility that federal credit unions might decide to pass the tax along to the borrower, despite the anti-pass-through language of the statute.

One might expect the federal credit unions to try to use the 1992 Dime Savings Bank case as a precedent, if they find their mortgages being made subject to SAMRT in order to be recorded.

The Appellate Division Second Department held in The Dime Savings Bank of New York, FSB, v. The State of New York. 174 AD2d 173 (1992), that the anti-pass through provision of the special additional mortgage recording tax was in conflict with a federal regulation (12 CFR 545.32 (b)(5)) and was thus unenforceable against federal savings associations (including federal savings banks). The plaintiff federal thrift obtained a judgment enjoining enforcement of the anti-pass through provision against it.  The borrowers had to pay the tax.

Similar provisions in the Federal Credit Union Act (FCUA) and the applicable federal regulations for federal credit unions may lead to federal credit unions claiming a similar exemption from the anti-pass-through provision of the state statute.

However, most federal thrifts did not jump on the Dime Savings Bank bandwagon, realizing that passing through the SAMRT to the borrower would not be competitive.  While some out-of-state federal savings institutions have followed the precedent and passed the tax on to the borrower, most have not.

If the rule is changed and the SAMRT is imposed on the recording of mortgages made to federal credit unions, it is possible that only a few might choose to try to pass the tax on to the borrower.

Such a policy unlawfully interferes with the seller’s rights. However, the statutory relief involves only an order mandating acceptance, with no other penalty.

Article 15 of The New York General Obligations Law (GOL) governs the making, use and acceptance of statutory short form powers of attorney.

  § 5-1504. Acceptance of statutory short form power of attorney.
1. No third party located in this state shall refuse, without reasonable cause, to honor a statutory short form power of attorney properly executed in accordance with section 5-1501B of this title, including a statutory short form power of attorney which is supplemented by a statutory major gifts rider, or a statutory short form power of attorney properly executed in accordance with the laws in effect at the time of its execution.
     (a) Reasonable cause under this subdivision shall include, but not be limited to:
. . .
     (9) the refusal by a title insurance company to underwrite title insurance for a transfer of real property made pursuant to a major gifts rider or non-statutory power of attorney that does not contain express instructions or purposes of the principal.

The statute allows a title company to refuse to underwrite the title for a transfer made pursuant to a major gifts rider. After all, we are not required to insure deeds made for no consideration, so this makes sense.

On the other hand, one may fairly conclude that it is prima facie unreasonable for a title company to require a major gifts rider or to refuse to insure an arms-length transfer to a bona fide purchaser for value, solely because the power used by the seller does not have a major gifts rider, where the transfer does not involve the making of a gift, major or otherwise.

The legislature created the major gifts rider as an optional and separate, but accessory, document for a contemporaneously-created power of attorney. It cannot be used alone, but only in conjunction with a power of attorney that is made at the same time. Making a valid major gifts rider involves both an acknowledgment and a witnessing by two witnesses. The legislature intended that the major gifts rider be used only in those situations where the principal fully understands and wishes the attorney-in-fact to have the ability to make large gifts on the principal’s behalf, and not as a “belt and suspenders” appendage to an ordinary power used in a typical title insurance transaction.

Title companies and others do not have to accept a power of attorney that is not on a statutory short form. The law does not prohibit the use of other forms of power, but if a statutory short form is not used, this “requirements of acceptance” section (5-1504) of the GOL does not apply.

     6. Nothing in this section shall require the acceptance of a form that is not a statutory short form power of attorney.

Some title companies might use this provision to reject out-of-hand any power that is not on a statutory short form, rather than take the time to review the non-standard power, or power made under the laws of another jurisdiction. That may be their right, but it is not providing good customer service.

A title company may require the agent to execute an affidavit that the power of attorney is in full force and effect:

     5. When the power of attorney is presented to a third party, it shall not be deemed unreasonable for a third party to require the agent to execute an acknowledged affidavit pursuant to this subdivision stating that the power of attorney is in full force and effect.

Such a requirement is quite appropriate, and the use of such an affidavit provides a degree of protection for the party requiring the affidavit.

So, what happens when a title company, lender, or lender’s attorney refuses to accept a seller’s power without a major gifts rider?

Where the sale is to a bona fide purchaser for value, the statute indicates that the refusal is unlawful and Section 5-1504 provides a remedy under Section 5-1510 of the GOL.

     2. Except as provided in subdivision three of this section, it shall be deemed unlawful for a third party to unreasonably refuse to honor a properly executed statutory short form power of attorney, including a statutory short form power of attorney which is supplemented by a statutory major gifts rider, or a statutory short form power of attorney properly executed in accordance with the laws in effect at the time of its execution. A special proceeding as authorized by section 5-1510 of this title shall be the exclusive remedy for a violation of this section.

Unfortunately, the statutory remedy is toothless in this case, since under Section 5-1510, if the proceeding is:

     (i) to compel acceptance of the power of attorney in which event the relief to be granted is limited to an order compelling acceptance.

It seems that relief might not even include costs and disbursements. Sadly, a remedy without any the imposition of a penalty on those who abuse their position may be seen by them as an invitation to violate the law with impunity.

Should seller actually desire to use the rider, the statute requires both an acknowledgment and a witnessing by two additional witnesses. Here is the statutory provision regarding the Major Gifts Rider signature, acknowledgment and witnessing, from GOL Section 5-1514:

9. To be valid, a statutory major gifts rider to a statutory short form power of attorney must:
. . .
(b) Be signed and dated by a principal with capacity, with the signature of the principal duly acknowledged in the manner prescribed for the acknowledgment of a conveyance of real property, and witnessed by two persons who are not named in the instrument as permissible recipients of gifts or other transfers, in the manner described at paragraph two of subdivision (a) of section 3-2.1 of the estates, powers and trusts law.

When a seller uses a power as a convenience for a particular transaction only, the best “belt-and-suspenders” is to provide an express limitation of the use of the power to the particular real estate transaction.

The Major Gifts Rider is misunderstood by many. It really is inappropriate for power intended to be used solely in an ordinary real estate transaction involving an arms-length transfer. Title companies and others who inappropriately and unlawfully require the use of a Major Gifts Rider in these circumstances misunderstand the nature and intent of the statute.