Can a power of attorney borrow money to buy a property?

[delboy1984]

First time posting on this forum so apologies if I've posted in the wrong place.

My question is in the title really - can a power of attorney borrow money from her donor to buy property?

Bit of back story...
Donor had an accident at work, resulting in a serious head injury which meant that she is now never able to work again. She was given a large sum in compensation. Due to the donor not being mentally capable to purchase a house for herself and spending money willy-nilly she appointed her sister as power of attorney to deal with these issues. Fast forward a few years and now the POA is borrowing money from the donor to buy a house. Prior to the agreement the POA was in quite a dier financial situation - credit card, overdraft debt. The POA is saying that she has to pay back the loan to the donor at an agreed amount each month.

My issue is is that since the POA has borrowed the money she's bought a property, paid off her debt and has been spending excessively (gone on holiday etc). My question is - is this legal? If the POA is saying that the donor has agreed to this loan and she has her signature is this allowed? Morally I think it's not right but legally is she allowed to loan money from her sister to benefit herself (with no benefit to the donor) and pay her back?

Any advice would be greatly appreciated :-)

Similar for us. We and her fiancé's parents loaned them money to bridge between two properties after a buyer pulled out at the last minute.

Money I'd inherited but I had to show the entire trail to her solicitors including giving them details of the professional executor of Mum's will. The regulator for Solicitors is very hot on this. Regular issue in discipline proceedings.

A solicitor I knew was left in a quandary over whether she could advise and elderly recent widow who had no passport or driving licence and where all bills were in her late husband's name. She literally could not tick the boxes she need to under the regualtions.

@BorgQueen Ditto here! Also state we were not borrowing the money for the gift.

Thank you all for your replies.

In terms of the checks I'm really not sure what the POA had to go through to prove where she got the money from? So if she literally called up her bank and said I want to pay off my mortgage the bank would be the ones to do these stringent checks?

It gets a bit greyer also because the POA is in the process of going through a divorce amongst all this. So she's paid off the mortgage in full, her credit cards and spent some but her ex husband has moved out but is still on the mortgage papers. They are due to go to the financial court hearing in July.

You didn’t originally say it was paying off a mortgage. I think most of us thought it was buying a house and getting a mortgage with a deposit from the donor. These are the same thing. However it’s still wrong because the money is the donor’s and it is the job of the attorney to look after the donor: not spend her money on paying off the attorney’s mortgage. I’m not aware of checks when paying off a mortgage- having done it. Obviously it’s not borrowing money. The attorney should still be accountable for their actions and I still think a written agreement should have been entered into.

We thought that because op said it was for buying a house in their first post.
Op do you actually have details or just suspicions?

Also why would one party pay off the mortgage before a divorce financial settlement ? Surely you wait for this and reach an Agreement about what to do with the assets? Ownership will remain the same regardless of who paid off what but proportion of the asset to each party is another matter. Unless ex has given attorney the house. This seems an odd thing to do at this time unless they have an ad hoc financial arrangement and aren’t looking for a court settlement. It is still not acceptable to use the donor’s money though.

Oh apologies it wasn't mentioned in my original post.

The POA has borrowed the money from the donor to pay off the mortgage (and supposedly give her ex husband his share when the financial court hearing happens in July). The POA wants to stay in the family home and I suppose the only way to do this would to be to borrow money from her sister. She's received the money from the donor, paid off the whole mortgage and is now mortgage free (with only a small amount agreed to be paid back each month from the loan). They have had the original court hearing and the judge didn't seem interested in how she got the money to pay off the mortgage as long as she has a signed letter from her sister to say what the agreement is it's ok. The court doesn't know that the party is POA to the loanee of course.

I was very surprised that the POA has done all this prior to the settlement in court. Would her new improved financial situation not go against her in court in terms of settlement with her ex husband when it happens? The ex has not given the attorney the house. He is in financial troubles himself and is desperate for settlement and his fair share.

Would her new improved financial situation not go against her in court in terms of settlement with her ex husband when it happens?

If this is a loan, no, it won't make much, if any, difference. She still owes just as much money, but it is now to her sister rather than a mortgage lender.

Even under money laundering regs the mortgage company should have at least asked where the money was coming from!
The loan agreement should be watertight too and both parties would have had to have independent financial advice. I loaned some money to a relative and had my solicitor draw up a loan agreement and they were very clear that they couldn't act for both parties just me and the relative had to get independent advice.

You cannot actually take out a Power of Attorney for someone who has no capacity at all because they must agree to it and be able to understand what it means.
If they have no.capacity at all the the responsible person would need to apply for a deputyship with the Court of Protection. So the person might well still have the capacity to agree to this if they have agreed to the POA but personally I would report it anyway because it is hardly acting in the persons interests.

In case you need to progress things the person you are calling the POA is called the attorney, not the “power of attorney”. The attorney has power of attorney

I would definitely contact the Office of the Public Guardian and get their advice. It sounds dodgy to me ( as a non-legal person), but you need proper advice.

There may be a way of making this acceptable if the loan is repaid with appropriate interest-OPG will be able to help you.

Please don’t let this lie though. As you say, this money is needed to support the vulnerable person for their lifeline so if the situation isn’t clarified now, they could be further exploited in the future.

Most people wait for the financial settlement for the divorce before paying off a mortgage with someone else’s money! It’s not acceptable for an attorney to do this. Also how is the ex husband going to be paid for share of the house? Another loan from the donor? In most cases houses are sold and then each party get the proportion agreed in court. The mortgage is paid off when the home is sold and the parties start all over again. Is the “borrowed” money buying out the ex? If not, how is he going to be bought out of his share of the asset?

@TizerorFizz

Nope! The attorney received the money from the donor and has gone and paid off the mortgage in full, as well as her other debt and is now already paying back less then half of what she was paying out for the mortgage back to the donor for the loan, resulting in far less outgoings. Due to her debt and high mortgage payments I think this would be why she went and done this prior to the divorce settlement, subsequently the attorney's ex husband is now joint owner of the mortgage free home. At the first financial divorce court hearing the judge didn't seem interested in the details. All they stated was that as it is a 'soft' loan it would have to be put down in writing with both parties signing it. Which the attorney had to hand. The judge didn't know that the party is power of attorney to the person who's given the loan.

I believe the donor has been coerced into agreeing to this loan as she had always refused to it in the past and has suddenly now lent the attorney the money. I just have no proof of this. I know that the attorney has been trying to convince the donor to lend her the money for quite some time and that the donor has always been reluctant but has now agreed to it. I know this but I have no evidence.

It's such a tricky situation. The attorney has convinced the donor (by saying that when she sells the house in 6 years time) he will get this much interest but I just don't know what's been documented in the loan agreement between them.

I could contact the OPG and they could very well turn round and say "nope! The donor has mental capacity and has agreed to this loan, a loan agreement has been produced" but I know for sure the donor has been "convinced" into agreeing to this.

@TizerorFizz in terms of the ex husband's share in the house. The attorney has been very keen to get the ex to agree to settling out of court prior to the final hearing in July. She's very keen for them to come to an agreement between themselves but he's wary because he doesn't think the offer is fair. The attorney has (what she perceives as his share) now so the donor has loaned her the money to pay off the mortgage in full, pay off her debt, spend some more and has the ex husband's share as well.

I think OPG would be interested to look at this clear conflict of interest here. I really recommend raising to them

You need to contact the OPG. There are lots of ifs and buts and maybes. Only the OPG can advise you properly

A family court isn’t really interested in where money came from. They usually look at all family finance and the need to rehouse both parties. Often that cannot be by one party staying in the family house because the other party cannot raise the money to buy it. So it’s sold. If it isn’t, how does ex get his share? I’m assuming he wasn’t paying the mortgage but it still doesn’t mean the house should not be sold. What has 6 years got to do with it?

Both parties couldn't afford to buy each other out until the attorney was loaned this money by her sister. The ex husband moved out and is renting privately due to it being too toxic to stay in the family home. The only way the attorney could stay in the family home was to buy out her ex husband and this is what she's planning to do when settlement is finalised (if he doesn't cave in the meantime). You could say she was desperate to stay, hence convincing the donor to lend her the money. It was not the donor's idea at all, the attorney has been actively trying to persuade the donor for over a year, with the donor not being keen. Until now, when they've gone to court and she has this 'loan agreement' from her sister (the donor).

The attorney is saying that once the children have finished primary school (in 6 years time and they're likely to move abroad then) she will sell the house and give her sister (the donor) any money that is left to pay (money loaned minus what she's paid back in monthly amounts). There's really nothing stopping the attorney deciding in 6 years to stay there. The attorney is actively trying to persuade her ex husband to accept her (unfair) offer of settlement before the court hearing in July so she has the ex husband's share already (the chunk of money she's loaned from the donor). Maybe she's wanting to settle out of court because she's concerned issues involving the loan might be looked into. It's all very dodgy.

@delboy1984 She has no “right” to stay in this house. Many houses are sold to split up the equity. The ex needs money too. It could still be the case that the house is sold. Frequently this is what happens and he doesn’t have to accept an unfair offer. He might even have decent advice to put his case forward.

You said she paid off the mortgage with the donor’s money. Which is it? The loan won’t be looked into but equity and all finances will. So is the loan now for the ex?

I can’t see any circumstances under which this doesn’t disadvantage the vulnerable person the POA is intended to protect.

IMO it’s a clear conflict of interest and abuse of the POA. What security is there that the money will ever repaid? Is there a charge over the property protecting the money? Is a market rate of interest being charged?

The ex husband moved out because it was such a toxic environment for the children but the attorney (even though she struggled at first financially to pay the mortgage on her own) has always said that she wants to remain in the home so that the children aren't having to settle in 2 different houses (split custody). The ex husband has gone along with it because he agrees to a certain extent that it's good for the children to have some sort of familiarity.

So the attorney has gone from not being able to afford to stay there (but digging her heels in anyway), to paying off the mortgage in full (and her debts) in the space of a few months thanks to the donor's loan. The ex husband just wants a fair share of the equity and this will have to come from the donor as well as the attorney has no intention of selling the house until the kids have left primary school. As far as the ex husband is aware (from what was said in the first financial hearing) the attorney has already received the loan from the donor (don't know how much) but has paid off the mortgage in full and cleared her debts, but must have the ex husband's share as well as she is trying to convince him to settle out of court. The ex husband (even though he could desperately do with the money) won't be pressured into agreeing anything out of court.

On a separate note, when the attorney paid off the mortgage (with the donor's loan) would her ex husband not have received any notification from the bank to say that this was the case? He's named on the mortgage as joint owner, but hasn't been notified at all. (The court hearing for the divorce was the first he'd heard about it).
So in turn, the ex husband still owns half the property until settlement is arranged by the courts in July.

OP as PP have said, if you have concerns that the donor (person who appointed the Attorney) lacks the mental capacity to make decisions relating to loaning funds to their sister/attorney then the Office of the Public Guardian should be informed as the OPG has statutory oversight of attorneys acting under the authority of registered LPAs (and EPAs.)
The most likely response will be that an investigation will be instigated.
If there are concerns about the attorney's conduct and the donor's capacity to agree to the loan, the OPG can make an application to the Court of Protection to suspend the LPA while they investigate further which may result in the revocation of the LPA (and potentially the appointment of an alternative Attorney if the donor has capacity to appoint a new one or a Deputy being appointed by the Court.
The Attorney's matrimonial situation is irrelevant - the issue is whether the abused her position by taking a loan.

I totally agree. The fact that the donor has always been reluctant in the past but has now given the loan is concerning.

I haven't seen the 'loan agreement' that the attorney showed the judge at the divorce financial hearing but surely it must have been professional enough and been cleared by two independent solicitors? Another issue is that if the donor ever needed to speak to a solicitor about anything (when she purchased her home after the accident for instance) the attorney had to deal with it all as the donor just couldn't get her head around all the legal bits.

In terms of interest again I'm not 100% sure what was in the agreement but in the past I know that the attorney was trying to convince the donor to the loan by saying she'd earn £25k when she sells the house in 6 years. I'm not sure if the attorney was basing that on an average interest rate or plucking a figure out of thin air.

I wouldn’t concern yourself with the recipient’s martial issues, I.e., whether her husband knows that the mortgage is paid off. Contact the OPG and focus solely on the loan and your concerns surrounding it, such as the donor’s capacity and whether the loan is in their best interest (it’s clearly not).

I’m named as my Dad’s attorney if/when he needs it, and my understanding is that I must always act in his best interests. If this person hasn’t done that, surely it’s a violation?