New Sections 5-1501, 5-1501A and 5-1501B of the New York General Obligations Law[1] will take effect on September 1, 2009 that will affect the validity of powers of attorney. Although currently valid powers of attorney will remain in effect, all new powers of attorney must be drafted on a new statutory form or must incorporate the new language required by the law. The statutory changes will affect many transactions, including those involving cooperatives and condominiums.
Under the new law, the agent, as well as the principal, must now sign the form, and the power will survive the incapacity of the principal unless the form expressly provides otherwise. The most important change is that an additional form, called the Major Gifts Rider, must be used if the principal wishes the agent to make major gifts or transfers of property. Therefore, if a power executed after September 1, 2009, is to be used for a major real estate transaction, such as a transfer of a cooperative or condominium, the Major Gifts Rider will be required. (As noted above, powers executed prior to September 1, 2009 remain effective.)
Whenever a cooperative is to be transferred under a power of attorney, it is extremely important that the transfer agent and the cooperative’s lawyer carefully examine the power of attorney. If inspection would have revealed that the power being used was invalid or fraudulent, the transfer agent, as well as the cooperative, could be held liable for any loss that results. For example, if a unit is sold by an imposter under a forged power of attorney, the actual owner of the unit could hold the cooperative and transfer agent liable for the value of the apartment. With the new form and rules taking effect on September 1st, it is more important than ever that any power of attorney submitted by a seller or purchaser of a cooperative be thoroughly examined.
A condominium is less exposed in a transfer because condominium transfers are usually insured by a title company that will inspect the power of attorney and insure that the power was valid. Nevertheless, if a condominium owner uses a power of attorney for other matters concerning the condominium, such power should be carefully inspected by the condominium’s counsel.
It should be noted that all powers automatically terminate upon the death of the principal. This aspect of law is not affected by the statutory change. Thus, it is critical that the cooperative or condominium confirm that the principal is still alive at the time the power is being used.
If you would like to us to review your procedures regarding powers of attorney, or have any questions concerning powers of attorney in general, please contact us.
[1] These new sections replace the prior version of Section 5-1501 which has been repealed.
This memorandum was initially issued by the cooperative/condominium practice group of Balber Pickard Maldonado & Van Der Tuin, PC which joined Smith, Gambrell & Russell, LLP on February 1, 2017 and now practices as part of SGR’s cooperative/condominium practice group.