Subject to deal - POA alternatives?

Question

Hi BP,Does anyone have any suggestions or solutions to the following scenario? You close a deal sub2, the lender is a small family owned business and they decide to execute their due on sale clause upon discovery ownership of the property has transferred. Given the situation, is there any other alternatives that can be used other than a POA to allow you to negotiate remedies with the bank? For example, let's say after speaking with the bank they agree that if the property is deeded back to the seller and put on a lease option or executory / land contract they will not call the loan due. Is there a way to do all of this without having to get the seller again involved with the transaction they wanted to walk away from in the first place? Even worse, if the seller becomes at any point unreachable?It seems like POA is ideal here but then the argument some may make of not acting in the sellers best interest it could lead to an issue when technically becoming the sellers "Agent" with a POA.Even if a durable POA may state "The Agent may perform the actions listed above even if such actions result in a direct orindirect benefit to Agent." I am not sure if that would be enough to be completely held harmless.Would love to see some opinions and thoughts on this.

Rick Pozos · Answer

You mentioned that your concern was with the smaller loan company calling the loan due. This is part of your due diligence BEFORE you purchase the property. Subto works best with the big banks. Everything is automated. Jamie Dimon does not know that you bought a property with a Chase loan. You would get the loan info online and pay the mortgage auto draft every month. Nobody at Chase knows anything.Make sure that the loan you are taking Subto is a bigger bank. If it is a smaller bank or personal type of loan, bigger risk of calling the loan due.

Veronica Grimes · Answer

Hello Anthony. I'm a subto student as well as a creative Transaction Coordinator (TC). I first wanted to note that there a DLPOA should always be obtained when doing a subto transaction prior to or at closing. Also, did you provide the seller with disclosures indicating the due on sale clause could be enforced by the bank? It's not uncommon to see on smaller banks. There are other disclosures that should be provided to seller as well. I would advise having a creative TC always review your documentation to ensure that both parties are protected. I'll send you a direct message.

Tom Gimer · Answer

A disclaimer of interest would be something an heir / legatee / devisee executes in the context of probate. Sounds like people are winging this stuff and passing it off as expertise.

David M. · Answer

@Anthony GrecoThis is sort of tough, and is pretty much one of the risks with subj-to...Yeah, you should have gotten the POA up front... The simplest way to address this is just refinance. You really should be ready to do this when you went into this deal.Did you have an exit strategy when going into this? Usually, you want to refi shortly after closing so you aren't tied to your seller.Can you work out a deal with the lender?You probably don't want to, but can you sell? At least you get the equity...good luck.

Anthony Greco · Answer

This is a great thing to point out. Although I believe a disclaimer deed is good for this scenario it still seems like it becomes a mess. I really want to find a way to justify sub2 as a longer term hold strategy but I have a really hard time doing so. To me it feels like it makes the most sense with a quick exit and less of one for a longer term play.

Jacob Paulson · Answer

Rick, I think this is really valuable and thanks for sharing.

Tom Gimer · Answer

@Anthony Greco What gets executed is a limited POA specifically for dealing with the lender on the underlying loan. Not sure what the agent would be concerned about in the context of breach of fiduciary duty as in dealing with the lender for payments and payoffs the agent is acting in the best interests of the principal borrower. Can you elaborate on your concern?

Anthony Greco · Answer

I've read so much in that past 24 hours I think I have interpreted some of the information wrong or have a few points mixed up on that. Quote from @Veronica Grimes: Hello Anthony. I'm a subto student as well as a creative Transaction Coordinator (TC). I first wanted to note that there a DLPOA should always be obtained when doing a subto transaction prior to or at closing. Also, did you provide the seller with disclosures indicating the due on sale clause could be enforced by the bank? It's not uncommon to see on smaller banks. There are other disclosures that should be provided to seller as well. I would advise having a creative TC always review your documentation to ensure that both parties are protected. I'll send you a direct message. This is not an active deal just theory, but seller disclosure and acknowledgement would be provided in this example.

David M. · Answer

@Anthony GrecoYeah, i don't follow these "celebrities." I am not 'buying what they have to sell.'Well, good luck.

Anthony Greco · Answer

I think it may actually be a disclaimer of interest form or something along those lines... which is more so for title company to ensure that they have evidence the owner has no more financial interest in the property. That way they are not looking to the deceased owner for payoff info. I may be wrong on that though. This stuff with long term holds is being pitched all over lately. I believe this is a big thing in the "Subto" community as well with Pace Morby. Search something along these lines on YouTube and I am sure you will be inundated with results.