Bank Under No Obligation to Investigate Possible Revocation of Recorded Power of Attorney

Bank Under No Obligation to Investigate Possible

Revocation of Recorded Power of Attorney

      The Kentucky Court of Appeals, affirming the trial court, has ruled that a bank is not obligated to independently investigate the continuing viability of a recorded power of attorney.  Hull v. Citifinancial Services, Inc., No. 2011-WL-002163-MR (Ky. App. Feb. 8, 2013) (Not to be Published).

      David Hull gave a power of attorney, created under Pennsylvania law, to Yvonne Stanley.  The power of attorney was first recorded in Pennsylvania, allowing Yvonne to on David’s behalf sell a house there located.  The power of attorney was also recorded in Kentucky in connection with Yvonne’s purchase on David’s behalf of a farm in Morgan County.  Yvonne listed herself as a co-owner on that property, a point now challenged by David.

      On March 1, 2007, David orally advised Yvonne that the power of attorney was revoked.  However, it was not until September 24, 2008 that David recorded a revocation of the power of attorney in Pennsylvania, and it was only on April 16, 2009 that a revocation was recorded in Morgan County.

      Yvonne, in the meantime, borrowed $49,000 from Citifinancial, pledging the Morgan county farm as collateral; this she did on April 3, 2009, after the recording of the revocation in Pennsylvania but before the filing of the revocation in Kentucky.

      On the basis that Citifinancial should have investigated the Pennsylvania records before making the loan, an investigation that would have brought to light the revocation of Yvonne’s power of attorney, David brought suit against Citifinancial, asking that the mortgage collateralizing Yvonne’s borrowing be declared null and void.

      The Court of Appeals affirmed the trial court’s grant of summary judgment to Citifinancial.

      Relying primarily upon KRS § 382.370, which provides in part that no recorded power of attorney:

… shall be deemed to be revoked by any act of the party by whom it was executed, except from the time when there has been lodged for record in the office in which the power is recorded a written revocation, executed and proved or acknowledged in the manner prescribed for conveyances, or a memorandum of revocation made on the margin of the record thereof, which memorandum is signed by the party executing the same, and attested by the clerk.

the Court of Appeals held that the recorded power of attorney upon which Citifinancial relied was valid at the time Yvonne pledged the farm as collateral.  As for the revocation of the power of attorney in Pennsylvania, the Court found there to be no duty to investigate in that jurisdiction.

[A]s Citifinancial argues, Kentucky law requires that a document relating to title to real property be recorded in the clerk's office of the county where the property is located in order to constitute notice to subsequent purchasers. … David’s power of attorney was properly recorded in Kentucky in accordance with the pertinent statutes, and third parties, including Citifinancial, had a right to rely on it. Once such a power of attorney was validly recorded in Morgan County, to be valid, any revocation also had to be recorded in that county. To hold otherwise would undermine the purpose of the recording statutes.

      In response to a suggestion that the validity of the power of attorney should be reassessed applying Pennsylvania law, the Court found that Kentucky had the most significant relationship with the matter at hand, namely a mortgage on Kentucky property and the application of Kentucky law as to recording real property conveyances.  In addition, the application of that law would not matter as there was not shown to be an obligation under Pennsylvania law to investigate the continuing validity of a power of attorney.