I saw it happen and I was amazed. I was talking to a client who I knew had beginning stages of Alzheimer’s. We were having a rather pleasant conversation. Suddenly, her face went “blank”. The twinkle in her eyes was gone. Although the change in her face happened in less than a second, I caught the change. She now looked at me differently.
After a while, you get a sense about these things. It is important to study the face. Capacity or competence is not black and white. Rather, it comes in many shades of gray. A senior can have many moments of lucidity, yet have capacity issues. As our senior clients grow older, these issues will become more prevalent. The industry must become aware of the salient issues that surround this important topic.
Underwriters and processors cannot review capacity issues from their desks. However, if the originator cannot provide answers to obvious questions, the underwriters and processors will hold up the file until the originator gets those answers. To put this another way, originators, who do not do their jobs, will force underwriters and processors to make these decisions.
There are certain things that the originator should be aware of. I believe “competency” needs to be reviewed from several aspects . It usually becomes an issue when an adviser or family member brings it up. When this happens, I always want to know about the medical condition of the senior. Likewise I want to know about their cognitive function ability. Discovering the kinds of decisions they are able to make is important. Learning about the ADL’s that can still be performed, adds to the bundle of evidence. So does the type of decisions the senior can still make. This is how I get my comfort level. And that is all it is . A comfort level. I usually first depend upon the family in conjunction with their elder law attorney.
This dependence becomes rather important when a power of attorney is used. The first thing to look at is when it was executed. If within months of a reverse mortgage application there is a lot more investigation to be done. One needs to be downright skeptical. Remember, one can be lucid at a particular point in time and not lucid at another point in time. A power executed within a relatively short time of meeting with the family does not necessarily mean fraud or mischievous intent is involved. On the other hand, it does not provide one with a big comfort level either. Sending a file to an underwriter without a letter from a doctor who is familiar with case, is a recipe for disaster. The underwriter will have no choice but to place the file on hold. I find that speaking with the family and the attorney who drafted the power is equally important.
Of course I prefer when a power of attorney was executed years ago. It provides much more of a comfort level. Even in these cases, especially when we are dealing with capacity issues (incompetence), for example, independent inquiry is still important. The execution of same should always be under the auspice of an attorney. A Good attorney will only allow a client to execute such a power only when they are satisfied that, at the time of execution, the client understands the nature and consequence of that act. Here, I am speaking broadly. Each state has its own set of criteria for evaluating capacity issues.
While I question all POAs, it is important to determine the story behind each one. Typically the story is rather mundane; taking the form of a wise “business” and “financial” decision.
As an originator, I want to make things as easy for a client. Some, because of medical conditions, have a very difficult time signing their name “40” plus times.
So, even though no capacity issues are involved, a power could be a useful tool, that will make the reverse mortgage transaction, less taxing. This also presupposes that the agent designated in the power will have counseling done.
I always enclose a form stating why a power is being used. Under this scenario, the borrower will sign a couple of application documents. But they don’t have to sign their names “40” times.
And finally, the most important thing, I feel I can say on this topic is, if you are an adult and have not executed a durable power of attorney, you are putting your family at risk. It is time to speak to your attorney.
Comments