SOURCE: National Notary Association

September 26, 2007 17:13 ET

National Notary Association Alert: Limited Powers of Attorney Emerging as Dangerous New Tactic to Victimize Home Buyers

Growing Practice in the Mortgage Industry Gives Predators a 'License to Steal'

LOS ANGELES, CA--(Marketwire - September 26, 2007) - The recent collapse of the real estate boom and the exposure of fraudulent sub-prime lending practices have revealed rampant abuse in the mortgage industry. With the frenzied efforts to regain lost business, a refurbished version of an old tool called the "Limited Power of Attorney" is emerging to help industry predators defraud consumers with greater ease than ever before. In fact, fraud experts call this tool a "license to steal."

Limited Powers of Attorney -- which are just beginning to see wider use in residential real estate transactions -- are agreements that can give a designated person authority to sign documents related to a specific loan transaction on behalf of a borrower. Some title companies and lenders are using them to close residential mortgages online in hopes of cutting costs and streamlining the closing process.

But consumer advocates and fraud experts aren't seeing time savings or convenience. "These documents give one person the power to make changes to a mortgage transaction, including interest rates and fees, all without having to check with the borrower," said Timothy S. Reiniger, Executive Director of the National Notary Association (NNA). "Limited Powers of Attorney eliminate accountability in the mortgage industry. Signing one is like giving a predatory lender a blank check."

If abuses in the mortgage and real estate industries prove anything, it's that consumers should be wary of whom they trust. Foreclosure rescue scams, exposed in every state, often employ powers of attorney to bilk homeowners out of hundreds of thousands in equity. This type of fraud is becoming so widespread that state legislatures are moving quickly to crack down. A model "Mortgage Rescue Fraud Protection Act," drafted by the Center for Policy Alternatives, severely limits how powers of attorney may be used. That act has become law in eight states and is being considered by seven more.

Consumer advocates are adamant that powers of attorney should never be signed for the sake of convenience in routine mortgage transactions. One of the more common forms of predatory lending is the bait-and-switch tactic, whereby final terms are not the ones promised a borrower. If dishonest brokers are willing to use such tactics when face to face with consumers, the danger with online closings is far greater.

Despite the convenience an online closing system may appear to bring, there's simply too much potential for abuse. Contact Kelly Rush to obtain the National Notary Association's Limited Power of Attorney fact sheet. For more information on the NNA, visit www.nationalnotary.org.

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