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We often close transactions in which the seller is not a person. This often occurs with successions and business entities. While we know what to look for in these situations, it is not always so obvious for others to know what sort of documentation to ask for when dealing with a person who is claiming to act on behalf of one of these entities.

It is very important to consider issues of capacity and authority in these situations because without the proper documentation, a contract signed by someone who appears to act on behalf of one of these entities may not be valid. The real world consequences for real estate agents are that they may not have a valid listing agreement and may be wasting your time marketing a property in which the owners have no real obligation to pay your commission. If you are a FSBO buyer, you may not be able to close on the home that you love so much since that first impression because that purchase agreement is not valid.

Here are some examples that may help you next time you find yourself dealing with an entity on the other side of a transaction:

SUCCESSIONS: In Louisiana, an estate representative can dispose estate property. Whether or not a succession must be judicially opened depends on a variety of factors, but if a will exists, a court proceeding must be filed. You will want to find out from the succession representative if a succession has been opened and who the executor is. That person will either be able to sell the property without a court order if certain conditions are met or a court order will have to be obtained before any sale can be perfected. If a court order will be needed, that can cause a typical delay of a month, so agents will need to be cognizant of their clients’ financing conditions such as rate locks and contract expirations.

BUSINESS ENTITIES: Businesses come in a variety of forms, but you will most likely be dealing with a limited liability company. Limited liability companies are owned by members. They sometimes have managers who are designated to operate the company independent of the actual members and when this is the case, you will want to see documentation that the manager is in fact authorized by all the other members to manage the company. If the company does not have a manager, then all the members must either designate someone to act on the company’s behalf or all act in that capacity. Again, you will want to see some documentation that lets you know that the person with whom you are dealing does in fact have the capacity and authority to do what he is attempting to do.

In short, trust but verify that the person with whom you are dealing can do what he claims he can do! We are glad to help you if you have any questions about capacity and authority in your real estate transaction!

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