Thoughts on the use of The New York “Major Gifts Rider”
We recently became aware that some title companies, lenders and lender’s attorneys require that sellers utilizing a New York Statutory Short Form Power of Attorney must execute an “optional” Statutory Major Gifts Rider in all cases.
Such a policy unlawfully interferes with the seller’s rights. However, the statutory relief involves only an order mandating acceptance, with no other penalty.
Article 15 of The New York General Obligations Law (GOL) governs the making, use and acceptance of statutory short form powers of attorney.
§ 5-1504. Acceptance of statutory short form power of attorney.
1. No third party located in this state shall refuse, without reasonable cause, to honor a statutory short form power of attorney properly executed in accordance with section 5-1501B of this title, including a statutory short form power of attorney which is supplemented by a statutory major gifts rider, or a statutory short form power of attorney properly executed in accordance with the laws in effect at the time of its execution.
(a) Reasonable cause under this subdivision shall include, but not be limited to:
. . .
(9) the refusal by a title insurance company to underwrite title insurance for a transfer of real property made pursuant to a major gifts rider or non-statutory power of attorney that does not contain express instructions or purposes of the principal.
The statute allows a title company to refuse to underwrite the title for a transfer made pursuant to a major gifts rider. After all, we are not required to insure deeds made for no consideration, so this makes sense.
On the other hand, one may fairly conclude that it is prima facie unreasonable for a title company to require a major gifts rider or to refuse to insure an arms-length transfer to a bona fide purchaser for value, solely because the power used by the seller does not have a major gifts rider, where the transfer does not involve the making of a gift, major or otherwise.
The legislature created the major gifts rider as an optional and separate, but accessory, document for a contemporaneously-created power of attorney. It cannot be used alone, but only in conjunction with a power of attorney that is made at the same time. Making a valid major gifts rider involves both an acknowledgment and a witnessing by two witnesses. The legislature intended that the major gifts rider be used only in those situations where the principal fully understands and wishes the attorney-in-fact to have the ability to make large gifts on the principal’s behalf, and not as a “belt and suspenders” appendage to an ordinary power used in a typical title insurance transaction.
Title companies and others do not have to accept a power of attorney that is not on a statutory short form. The law does not prohibit the use of other forms of power, but if a statutory short form is not used, this “requirements of acceptance” section (5-1504) of the GOL does not apply.
6. Nothing in this section shall require the acceptance of a form that is not a statutory short form power of attorney.
Some title companies might use this provision to reject out-of-hand any power that is not on a statutory short form, rather than take the time to review the non-standard power, or power made under the laws of another jurisdiction. That may be their right, but it is not providing good customer service.
A title company may require the agent to execute an affidavit that the power of attorney is in full force and effect:
5. When the power of attorney is presented to a third party, it shall not be deemed unreasonable for a third party to require the agent to execute an acknowledged affidavit pursuant to this subdivision stating that the power of attorney is in full force and effect.
Such a requirement is quite appropriate, and the use of such an affidavit provides a degree of protection for the party requiring the affidavit.
So, what happens when a title company, lender, or lender’s attorney refuses to accept a seller’s power without a major gifts rider?
Where the sale is to a bona fide purchaser for value, the statute indicates that the refusal is unlawful and Section 5-1504 provides a remedy under Section 5-1510 of the GOL.
2. Except as provided in subdivision three of this section, it shall be deemed unlawful for a third party to unreasonably refuse to honor a properly executed statutory short form power of attorney, including a statutory short form power of attorney which is supplemented by a statutory major gifts rider, or a statutory short form power of attorney properly executed in accordance with the laws in effect at the time of its execution. A special proceeding as authorized by section 5-1510 of this title shall be the exclusive remedy for a violation of this section.
Unfortunately, the statutory remedy is toothless in this case, since under Section 5-1510, if the proceeding is:
(i) to compel acceptance of the power of attorney in which event the relief to be granted is limited to an order compelling acceptance.
It seems that relief might not even include costs and disbursements. Sadly, a remedy without any the imposition of a penalty on those who abuse their position may be seen by them as an invitation to violate the law with impunity.
Should seller actually desire to use the rider, the statute requires both an acknowledgment and a witnessing by two additional witnesses. Here is the statutory provision regarding the Major Gifts Rider signature, acknowledgment and witnessing, from GOL Section 5-1514:
9. To be valid, a statutory major gifts rider to a statutory short form power of attorney must:
. . .
(b) Be signed and dated by a principal with capacity, with the signature of the principal duly acknowledged in the manner prescribed for the acknowledgment of a conveyance of real property, and witnessed by two persons who are not named in the instrument as permissible recipients of gifts or other transfers, in the manner described at paragraph two of subdivision (a) of section 3-2.1 of the estates, powers and trusts law.
When a seller uses a power as a convenience for a particular transaction only, the best “belt-and-suspenders” is to provide an express limitation of the use of the power to the particular real estate transaction.
The Major Gifts Rider is misunderstood by many. It really is inappropriate for power intended to be used solely in an ordinary real estate transaction involving an arms-length transfer. Title companies and others who inappropriately and unlawfully require the use of a Major Gifts Rider in these circumstances misunderstand the nature and intent of the statute.