The FHA loan process can be a long and winding road before getting to the closing date, and not every transaction goes as smoothly as hoped.
While many FHA borrowers fully anticipate showing up on closing day to sign final paperwork, render any payments due and take possession of the property, sometimes life gets in the way and prevents the borrower from being there in person.
Sometimes that’s because of work requirements, family emergencies, health problems or other factors, but regardless of the cause, something is preventing the borrower from being physically present to sign his or her name and take ownership of the home. If a borrower cannot be present in person to close the deal, do FHA rules allow a third party to act on the borrower’s behalf at closing time?
According to FHA loan rules, the answer is yes–but the borrower must designate a representative using a power of attorney to close the sale for them. Being an “attorney-in-fact” is what lawyers call acting on behalf of the borrower in this way.
What can someone with a power of attorney do for the FHA borrower at closing time? According to the FHA rules, “A borrower may designate an attorney-in-fact to use a power of attorney to sign documents on his/her behalf at closing, including page four of form HUD-92900-A, Addendum to the Uniform Residential Loan Application, and the final Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA), if signed at closing.”
It’s important to note that a power of attorney is not something to be taken lightly. There are two basic types; one is a specific power of attorney which gives the bearer permission only to perform the functions listed on the document. The second type is far more powerful.
The general power of attorney allows the bearer to perform a wide range of activities on behalf of the borrower including sale of property, opening lines of credit or closing them (depending on state law and other factors), etc. It’s best to consult an expert before assigning someone a general power of attorney in most cases.
Any borrower who chooses to assign power of attorney to someone else for the purposes of closing the FHA mortgage deal must comply with state law, and according to the FHA, “allow for legal enforcement of the mortgage note in the jurisdiction.”