Why is it important to ensure one individual can legally sign for another? If a document, such as a contract of sale, is not signed by someone with appropriate capacity (i.e., the ability to understand), it is legally invalid. Often, people believe they can sign for another when they have no legal authority. Therefore, it is imperative to establish appropriate signing capacity to avoid delays and complications.

 

There are a few scenarios where one person may sign for another. The first is where there is a lack of physical capacity, meaning the pertinent party is physically unable to execute documents, either because they are not physically present, or they are physically incapable of signing due to injury or disability.

 

A Power of Attorney is the most common option to address physical capacity issues. A Power of Attorney is a document whereby the Grantor or "Principal" grants to the Grantee or "Agent" certain authority to act on behalf of the Grantor. The Maryland Power of Attorney statute includes a form that can be used to ensure compliance. Alternatively, any Power of Attorney created in Maryland must be in a form that is "substantially similar" to the statutory form of Power of Attorney provided by the statute to be legally sufficient.

 

To comply with the statute, the Power of Attorney must be notarized and witnessed by at least two individuals who are not the Principal or the Agent and should include the addresses and phone numbers of the witnesses. In addition, the Power of Attorney should clearly identify the Grantor/Principal and Grantee/Agent, along with the specific details of the granted authority. There is also the option of a Limited Power of Attorney, often limited to a specific property or purpose. Maryland will recognize a Power of Attorney from another state if it meets the legal requirements within the state of execution.

 

To be legally effective, the execution of the Power of Attorney must occur before any loss of mental capacity, and the Principal must be alive when using the Power of Attorney. If the Power of Attorney is "durable," it will survive the incapacity of the Principal. However, it is still important to confirm that the Principal was of sound mind when the document was executed. Even if there are no mental capacity concerns, best practices include a day-of settlement "alive and well" check via phone with the Grantor.

 

Another scenario is when one person may sign for another when a lack of mental capacity occurs, and an individual cannot comprehend the nature and scope of the transaction (or manage their affairs). As discussed above, a Power of Attorney cannot be executed by a Principal who lacks mental capacity; therefore, if a Power of Attorney was not executed prior to the lack of mental capacity, there are a few additional alternatives for navigating a real estate transaction.

 

The most extreme option is guardianship for the individual. Guardianship involves filing a court action where the Court will determine whether the individual can manage their own affairs and, if not, appoint a guardian to handle all the personal and legal matters for that individual. The Guardianship route can be a very burdensome undertaking for the individual seeking guardianship, and understandably, the requirements for a court-appointed Guardianship are very high.

 

A less burdensome alternative under Maryland law is to file a limited guardianship action regarding the property. This scenario still requires Court action; however, the request for guardianship is only for a particular property for a specific purpose (i.e., to allow the selling of the property to support the individual's assisted living costs). In addition, limited guardianship does not require the Court to make a complete determination as to the individual's mental capacity or appoint a guardian for all their affairs, so it is a better option when the sole concern is the sale of real property.

 

Stay tuned for Appropriate Signing Capacity: Part II – Signing on Behalf of an Entity (Estate, Trust, Company)

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