Agent May Not Lien Parents’ Home for Personal Loans

AUGUST 5, 1996 VOLUME 4, NUMBER 6

Oregon residents Edward and Patricia Hagan did what many older adults do; they gave their son Gerry a general, durable power of attorney so that someone would be able to handle financial matters for them. As too often happens, their son misused the power.

Gerry borrowed $100,000 from a third party, Jay Shore. Later, he borrowed another $95,000 from Lorraine Hall. He used the money in both cases for his own purposes. Unfortunately for Mr. and Mrs. Hagan, in both cases he secured the loans by giving a deed of trust against his parents’ home. He signed both deeds as his parents’ attorney-in-fact.

Mrs. Hagan slowly lost her ability to handle financial affairs, but the encumbrances remained a concern for Mr. Hagan. In 1994, acting for both himself and his wife, Mr. Hagan brought an action to declare them invalid. His attorney argued that Gerry clearly exceeded his authority in signing the deeds, since the loans were for his own benefit and not his parents’.

Mr. Shore and Ms. Hall, through their attorneys, argued that Gerry had the authority to place encumbrances on his parents’ property. They pointed to a provision in the power of attorney which released all third persons from “responsibility for the acts and omissions” of Gerry.

The Oregon Court of Appeals ruled that Gerry exceeded his authority when he used the powers of attorney to encumber the property. This is so because the loans clearly did not benefit Mr. and Mrs. Hagan (despite the argument by the lenders that they may have derived some emotional benefit from permitting loans to be made to their son). Consequently, the trust deeds are invalid, and the court declared that the encumbrances were unenforceable. Hagan v. Shore, Oregon Court of Appeals, April 17, 1996.

The Hagans’ dilemma suggests two further concerns. First, even though they were successful, the legal proceedings were time-consuming and expensive. Mrs. Hagan was apparently already losing her capacity at the beginning of the proceedings, and the psychic and emotional toll on Mr. Hagan was presumably immense.

Furthermore, it should be clearly understood that the Hagans might have experienced a different result in only slightly different circumstances. If, for instance, any portion of the loan proceeds had been used for their benefit, or if Gerry had testified that he discussed the matter with either or both of them, or if the power of attorney had conveyed the power to make gifts to Gerry, the Hagans might have lost their home.

Both lenders would have their first recourse to Gerry, so that every encumbrance of property would not necessarily result in loss of the property. Nonetheless, the potential for loss and abuse is substantial. Most local practitioners can tell more than one story like the Hagans’.

How can concerned seniors plan for circumstances such as the Hagans”? There are several things which might have been suggested to Mr. and Mrs. Hagan to head off the kind of trouble they experienced:

  • Someone other than Gerry should have been considered as a potential agent. Family members are not the only available choices. It is likely that Gerry’s tendencies were known to his parents, and they should have known him to be unsuitable.
  • Specific limitations can be placed on agents. The power of attorney might have precluded the ability to encumber the home, for example.
  • Not everyone should have a power of attorney. If the Hagans were at all uncertain, they should have been advised that they could simply rely on the conservatorship process within the courts. While this would have increased expenses and administrative difficulties, it would have prevented the costs incurred by Mr. and Mrs. Hagan.
©2017 Fleming & Curti, PLC