When Good Faith Is Not Enough: Virginia Court Ruling on Forged Powers of Attorney

A recent decision from the Virginia Court of Appeals significantly limits the protections available to lenders and other third parties who rely in good faith on a power of attorney. The ruling underscores heightened risk when a power of attorney contains a forged signature, even where the lender has exercised diligence and had no reason to suspect fraud.

In Harwood v. Chinchilla, decided September 30, 2025, the Virginia Court of Appeals voided a $750,000 refinance mortgage loan and deed of trust after it was discovered that the purported power of attorney (POA), upon which the lender relied in making the loan to the named agent, was forged. The Virginia Uniform Power of Attorney Act protects a person who relies on an acknowledged POA if the person does so in good faith and without actual knowledge that the POA is invalid. In this case, however, the court held that the good faith protection did not apply because the forged POA was not properly acknowledged.

The case involved a couple who owned real estate in Fairfax County that was managed by an individual acting as the couple’s agent under a separate, authentic power of attorney. Without the couple’s knowledge, the agent created a fraudulent POA and used it to obtain a loan in the couple’s name, secured by their real estate. To make the signatures and acknowledgment on the fraudulent POA appear legitimate, the agent attached the notarized signature page from the authentic POA.

The lender had no reason to suspect that the POA was a forgery. The lender’s attorney reviewed the POA, and the lender obtained a certification from the agent confirming that the POA was valid. Nevertheless, because the couple was completely unaware of the POA created by the agent, the POA was not acknowledged. As a result, the lender was unable to collect the amount due on the loan from the couple or foreclose on the real property securing the loan.

The court’s decision is especially troubling because the Virginia Uniform Power of Attorney Act generally requires a person to accept an acknowledged POA unless the person, in good faith, believes the POA is invalid or the agent lacks authority.

The Uniform Power of Attorney Act

The Uniform Power of Attorney Act was adopted in Virginia in 2010. According to the drafters of the uniform act, the purpose of the good faith protection afforded to a person who accepts a POA without actual knowledge of its invalidity is to promote acceptance of powers of attorney by third parties.

In analyzing the applicability of that protection in this case, the court emphasized that the Virginia General Assembly made two significant non-uniform changes when adopting the act. First, while the uniform act defines “acknowledged” to mean “purportedly verified before a notary public,” the Virginia General Assembly removed the word “purportedly,” such that “acknowledged” means “verified before a notary public.” Second, the General Assembly carved out a non-uniform exception providing that the good faith protection does not apply to an acknowledged power of attorney that contains a forged signature of the principal.

Based on these changes, the court concluded that even though the lender exercised due diligence and had no reason to suspect the POA was invalid, it was not entitled to good faith protection because the principals’ signatures had been forged. As a result, the POA was not properly acknowledged.

The lender has appealed the decision to the Supreme Court of Virginia. In addition, legislation to reverse the decision was introduced during the 2026 session of the Virginia General Assembly but was carried over to the 2027 session.

Risk Mitigation for Financial Institutions

Unless and until the Supreme Court reverses the decision, or corrective legislation is enacted and becomes effective, financial institutions should exercise increased diligence and caution when asked to rely on a POA, particularly in transactions involving significant dollar amounts. As this case demonstrates, an institution that accepts a forged POA may bear the loss even if it had no reason to know of the forgery.

Financial institutions should consider the following steps to mitigate risk:

• Verify that the acknowledgment applies to the entire POA and that the acknowledgment or signature page is not substituted from another document
• Where feasible, contact the principal directly to confirm the authenticity of the POA
• Require an opinion of counsel under the Virginia Uniform Power of Attorney Act confirming the validity of the POA and the agent’s authority
• Seek a hold harmless and indemnification agreement from the agent
• For real estate loan transactions, confirm that lender title insurance covers this risk

If you have questions about this decision or its implications for your institution’s lending or transactional practices, please contact the author of this alert or a member of the Woods Rogers Financial Services Team.