Buyers Must Make Sellers Prove Signer is Authorized

On Behalf of | Apr 26, 2024 | Contract Disputes

I bet you thought you could rely on your title and escrow company to make sure that the signatures on a purchase or loan transaction, are valid. In Sam v. Kwan, published on April 19, 2024, when the seller purchased the subject property in August 2014, all the purchase documents were signed by Sam, including a recorded deed of trust and a recorded assignment of rents. A year later, the same property was sold, but that time, all the documents were signed by Kwan. The Court of Appeal held that the new buyer could not be a good faith purchaser, because the recorded deed of trust and the recorded assignment of rents, put the new buyer on constructive notice that Sam was the appropriate person to sign documents on behalf of the seller.

The title and escrow company observed this discrepancy and asked Kwan for certificates from the owners of the seller confirming that Kwan was the proper person to sign on behalf of the seller. The owners of the seller were all limited liability companies. Kwan signed the certificates on behalf of all the limited liability companies. The court made much of the timing. Kwan submitted the required signed certificates seventeen minutes after they were requested. The title company already had a copy of the seller’s LLC Operating Agreement naming Sam as the manager. At the closing a year later, Kwan submitted the exact same LLC Operating Agreement with the same date, but naming, instead, Kwan as the authorized manager. No one obtained proof that the power to sell the property on behalf of the seller had been properly transferred from Sam to Kwan. Therefore, the buyer could not establish that it was a good faith purchaser by summary judgment, and Sam could continue to contest the validity and effect of deed by Kwan to the buyer.

Property owners should make sure that they have a file which completely documents, with signatures, who owns and controls ownership of the property, especially who owns and can sign for any corporation, limited liability company or limited partnership which owns the property. When the owner wants to sell or borrow money secured by the property, the title company, seller and lender should be expected to ask for such proof of signing authority.

Likewise, buyers and lenders should demand such proof of signing authority for sellers and borrowers. If the signer is not going to be the same person who signed the last recorded document on behalf of the seller or borrower, then proof of how the new signer obtained such power should be obtained. That proof should be signed, and it should be signed by owners other than the proposed signer.

If you want to know whether you have checked out the signer’s authority to sign, well enough to qualify to be a good faith purchaser, call me. If you need to figure out how to satisfy the buyer, give me a call.