POA vs Guardianship Order (Leary v Anderson, NC App 2021)
In Leary v. Anderson (NC App, October 19, 2021), estate practitioners are reminded of the lesser-known rule that a power of attorney expressly authorizing real estate transactions is nonetheless limited by a subsequent guardianship order restricting the same. “It is not the source but the limitation of power which prevents it from being arbitrary" (Hayek). So too with POAs, it seems
Ms. Leary owned a home that was eventually sold to a good faith purchaser for value (Gokam Properties, LLC) in 2019 by an agent acting under purported authority of a POA. This sale was later sought to be set aside under a multifaceted theory that the agent lacked real authority to sell.
In 2017 a POA was executed (POA-1) appointing Ms. Leary's daughter as agent. Later in 2017 a second POA (POA-2) was executed appointing her son as agent. In 2018 a guardianship proceeding to determine Ms. Leary’s incompetency was held, and she was deemed incompetent to a limited extent. Her daughter had the opportunity but failed to ever qualify as guardian. In 2019 a third POA (POA-3)—this time the statutory short form for real estate transactions—was executed purporting to grant the daughter those specific powers as well (apparently in addition to her 2017 POA). A few days later, the property was sold to Gokam for $100,000. Agents under POA-2 brought the present lawsuit against the agent under POA-1 and Gokam to recover the house or its proceeds. Various challenges against POA-1 were raised: (1) that the Ms. Leary lacked capacity to execute, (2) that it was superseded by POA-2, and (3) that it was superseded by the guardianship order.
In its motion for summary judgment, Gokam argued it was a good faith purchaser for value based on the validly executed POA-1 authorizing the sale. The lower court agreed with this POA-authority argument and awarded summary judgment to Gokam.
On appeal, the COA looked past the limited POA-1 issue to hold that the sale violated a rule of law that “the sale of property by one who is not a person deemed incompetent’s duly appointed and qualified guardian is void.” (Citing Buncombe County v. Cain, 210 N.C. 766, 775, 188 S.E. 399, 404 (1936). “A ward’s estate is very carefully regulated, and the sale of real property is not allowed except by order of court.” Pike v. Wachovia Bank & Trust Co., 274 N.C. 1, 11, 161 S.E.2d 453, 462 (1968).
Generally, the case was remanded for proceedings to better elucidate whether the daughter who sold under veil of POA did or did not possess legitimate authority. This potential lack of authority spans not only the competing POA-1 vs POA-2 issue, but also the POA vs Guardianship issue.
The court’s opinion is frankly a bit sparse when it comes to its legal conclusions. In considering what a residential real estate sale should have additionally included to protect this purchaser, the court opinion offers little guidance. One can infer (but the court does not say) that the court seemed to place a title-searching, constructive notice type of standard on the buyer to have located and reviewed the guardianship order.
Caveat emptor, indeed.
Estate Planning: POAs should be put in place in a formal manner with stable witnessing and file documentation to ward off future claims of invalidity.
POA Administration: The timely recording of POAs is an important facet of the appearance of a timeline which may be scrutinized in the future. Also, it is nearly impossible to overstate the importance of maintaining a healthy family dynamic (with the Principal and with other siblings).
Guardianship: It seems the daughter had (and squandered) an opportunity to qualify as guardian. It is unclear (but seems unlikely) that she had counsel, but this is a reminder that sometimes significant post-hearing/transaction steps are needed to finalize an intended/available result.
Real estate sales: It would seem the title searcher could/should have located the guardianship filing.
Litigation vs ADR: It is always interesting to reverse engineer the money in litigation. This house sold for $100,000. Litigation costs will likely exceed or approach this value. Resolution through pre-litigation mediation or else through collaborative law or some other alternative dispute resolution (ADR) would certainly save time and money in a matter like this, if the parties are willing. There are limitations to these proceedings when an incompetent is involved however, which may be the case here.