Dealing with subject to

[Lee A.]

Hello BP,

When dealing with subject to deals. How do you get around the bank having issues with you taking over the payments? I have heard that banks will call the loan with  subject to deals. I have heard of doing limited power of attorney to speak on the behalf of the person that owes the bank the note to smooth things over.

Any thoughts?

[Christopher Brainard]

I @Lee A. and welcome to BP!

We've done several subject to deals and haven't had any issue with the bank, however, this is no guarantee that banks won't change their policy and call loans due in the future. Currently, interest rates are only a point or two above the lows, so if the note is performing, the bank has minimal incentive to call the loan due. If interest rates continue to increase, I think the probability of having the loan called due increases. If you do any subject to deals, you should always have the cash available to pay off the loan or financing available to refinance it, just in case things go south. I personally prefer to use this technique with flips, as the hold period on the house is short and its very unlikely that anything would happen in the 3 - 4 months we need to complete the property and sell it.

A limited power of attorney is the best way to go, as this will give you full access to speak on the half of the borrower. Owners are sometimes reluctant to provide one, as it sounds far more dangerous to them than it actually is. If you can't obtain one and you can't get the owner to signup for online access to the account and provide you the login information, the amount of information you will get out of the bank will be very limited. 

-Christopher