Subject To: Successfully resolved the process of a bank calling a loan due?
Member since 2023 · 7 posts · 5 votes
Subject To: Successfully resolved the process of a bank calling a loan due?
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesQuote from @Luke Rentz:
Thanks again Mike! Really appreciate your insight -! Good to know there are other options! I looked at your website and will consider reaching out on a specific deal :) Yea there's definitely alot of danger in these types of deals, hopefully the inexperienced don't ruin them for everyone!
bottom line is plan for the worse hope for the best. If the bank call the loan generally speaking your not going to negotiate any type of continuance of the loan.
so you have your 4 choices.
1. sell pay off loan
2. write a check ( its how we handled the 200 plus sub toos we did)
3. refi
4. deed back to seller
43 Replies
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Luke Rentz:
Hey guys,
I was just wondering if has gone through the process of a bank calling a loan due on a subject to closing? I would be really interested to hear how it went, how much time you had to correct or what actions they offered, and how it resolved?
Also, does anyone have a breakdown of disclosures they provide to the seller when purchasing a property this way? i have been making my own list, but would love someone else's to cross reference or even use with their permission. I know it's somewhat unlikely, but I just want to make sure I am dotting my i's and crossing my t's.
Thanks,They give you 30 days before you totally screw up the seller's credit and they foreclose.
Here's some help - look under #4 Defending a Subject To, then look at #5 (b)
Subject To Has 5 phases (ok, there are more, but I’m covering these 5 for now)https://www.biggerpockets.com/forums/311/topics/1154639-subj...
- Member since 2023 · 7 posts · 5 votes2y
Hey Mike - Thanks for commenting back on this. I've read a lot of your stuff and found it to be very helpful thinking through the process. The key is really, liked you mentioned, finding a deal with enough equity that you are not in trouble should the loan be called due (or have money set aside to cover that).
Have you heard or the lender giving you a chance to continue on in the original borrower's stead if you can prove good credit and show payment history? Just thinking that 30 days is not a very long window to get a new loan.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Luke Rentz:
Hey Mike - Thanks for commenting back on this. I've read a lot of your stuff and found it to be very helpful thinking through the process. The key is really, liked you mentioned, finding a deal with enough equity that you are not in trouble should the loan be called due (or have money set aside to cover that).
Have you heard or the lender giving you a chance to continue on in the original borrower's stead if you can prove good credit and show payment history? Just thinking that 30 days is not a very long window to get a new loan.
It depends on the type of loan. Most people don't realize that loans change hands.
Some loans are FHA, VA, USDA, Conventional, Jumbo, Reverse, HELOCS, 2nds, even 3rds, Construction, Commercial, Portfolio, Private, Hard Money, DSCR and a few other off beat types. There are loans that have been in loan modification, or bankruptcy, or probate or divorce or in litigation, or falsely conveyed. The list goes on.
They are all treated differently.
There isn't a "cure all". In some situations, a lender will allow for someone who didn't originate the loan to continue making payments, until the lender changes their mind. When we train students, we train for each of these contingencies. I've been though a couple of lawsuits on those issues. It wasn't pretty, but I won each time. I also learned how to keep law suits from occurring. Anyone Not Teaching what to do when the inevitable happens, is doing you a disservice. It's critical information to know, in order to avoid being sued, if & when it comes up. You can learn all this on your own, but it's very, very expensive. It took me 6 years and a couple of hundred thousand dollars in lawsuits. Don’t go that path. ;-) It’s isn’t a picnic and it saps your time from investing.
They are many other things that will come to light as the economy changes or regulations change or banking changes. It's not just one problem "they are many". :-) Yes, they can all be mitigated and dealt with, but it takes proper training. I see things being said at the Subto Community that actually concern me very much for the people involved. Whatever you decide, work with someone who will also tell you the “bad” news, and how to deal with it. That is what successful investing, for the long term, is all about. - Member since 2023 · 7 posts · 5 votes2y
Thanks again Mike! Really appreciate your insight -! Good to know there are other options! I looked at your website and will consider reaching out on a specific deal :) Yea there's definitely alot of danger in these types of deals, hopefully the inexperienced don't ruin them for everyone!
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Luke Rentz:
Thanks again Mike! Really appreciate your insight -! Good to know there are other options! I looked at your website and will consider reaching out on a specific deal :) Yea there's definitely alot of danger in these types of deals, hopefully the inexperienced don't ruin them for everyone!
bottom line is plan for the worse hope for the best. If the bank call the loan generally speaking your not going to negotiate any type of continuance of the loan.
so you have your 4 choices.
1. sell pay off loan
2. write a check ( its how we handled the 200 plus sub toos we did)
3. refi
4. deed back to seller
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Luke Rentz
I am going through it at the moment, but I am going through it as a lender.
I have had our attorney send the demand letter based on item 18 of the mortgage:
Transfer of the property or beneficial interest in borrower
After the 30 day demand we will file for foreclosure. It’s a non judicial state so sale date will be February / March.
So they either sell it, refinance it or another way to get the $ - I guess the borrower can file bankruptcy but that would be interesting since he gave up his interest in the property.
So we could easily get a motion for relief
7e investments53 Reviews - Member since 2023 · 7 posts · 5 votes2y
Quote from @Jay Hinrichs:
Quote from @Luke Rentz:
Thanks again Mike! Really appreciate your insight -! Good to know there are other options! I looked at your website and will consider reaching out on a specific deal :) Yea there's definitely alot of danger in these types of deals, hopefully the inexperienced don't ruin them for everyone!
bottom line is plan for the worse hope for the best. If the bank call the loan generally speaking your not going to negotiate any type of continuance of the loan.
so you have your 4 choices.
1. sell pay off loan
2. write a check ( its how we handled the 200 plus sub toos we did)
3. refi
4. deed back to seller
Yea that's what I was thinking - we are realtors by trade and invest on the side. My concern with selling is 30 days is a pretty short timeline to try to sell (I'd guess you have an extra 30-60 days before everything goes through)....
If they deed back to the seller, I'm sure there would be a way to convert it to like a master lease with an option to purchase? In your opinion, does that takeaway a lender's recourse or can they still continue to call the loan due?
- Member since 2023 · 7 posts · 5 votes2y
Quote from @Chris Seveney:
@Luke Rentz
I am going through it at the moment, but I am going through it as a lender.
I have had our attorney send the demand letter based on item 18 of the mortgage:
Transfer of the property or beneficial interest in borrower
After the 30 day demand we will file for foreclosure. It’s a non judicial state so sale date will be February / March.
So they either sell it, refinance it or another way to get the $ - I guess the borrower can file bankruptcy but that would be interesting since he gave up his interest in the property.
So we could easily get a motion for relief
Oh that's really interesting - I didn't expect to hear from someone on this side of the process. Are you a commercial lender I'd assume? Did you guys decide to call it due cause you had concerns about the loan, Or just a generally policy you always call all loans due if title changes hands? In this case, what notified you that this had taken place?
2 additional questions:
1 - If someone responded saying that they are putting the home on the market, would you guys still move forward with the foreclosure process? Or if they have a contract to purchase at the end of January? Is the foreclosure process enough of a hassle you'd consider giving that allowance or extra time?
2 - If they deed it back to the original owner, would you guys reverse calling the loan due?
Thanks for sharing!
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Luke Rentz:
Quote from @Jay Hinrichs:
Quote from @Luke Rentz:
Thanks again Mike! Really appreciate your insight -! Good to know there are other options! I looked at your website and will consider reaching out on a specific deal :) Yea there's definitely alot of danger in these types of deals, hopefully the inexperienced don't ruin them for everyone!
bottom line is plan for the worse hope for the best. If the bank call the loan generally speaking your not going to negotiate any type of continuance of the loan.
so you have your 4 choices.
1. sell pay off loan
2. write a check ( its how we handled the 200 plus sub toos we did)
3. refi
4. deed back to seller
Yea that's what I was thinking - we are realtors by trade and invest on the side. My concern with selling is 30 days is a pretty short timeline to try to sell (I'd guess you have an extra 30-60 days before everything goes through)....
If they deed back to the seller, I'm sure there would be a way to convert it to like a master lease with an option to purchase? In your opinion, does that takeaway a lender's recourse or can they still continue to call the loan due?
Heh, heh, heh By deeding it back to the seller, the buyer causes all kinds of other unanticipated legal and tax problems. Too complex to detail here.
Once the Due on Sale has been broken, it's the lender's call whether it can be fixed. They don't have to accept a title transfer back, if you read the Due on Sale clause. There is nothing that commits the lender to a particular action. They have free will to proceed as is best for them.
- Member since 2023 · 7 posts · 5 votes2y
Oh right - duh! haha.
And ok, yea that was what I figured - they could choose to still move forward with calling the loan due.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Luke Rentz:
Quote from @Chris Seveney:
@Luke Rentz
I am going through it at the moment, but I am going through it as a lender.
I have had our attorney send the demand letter based on item 18 of the mortgage:
Transfer of the property or beneficial interest in borrower
After the 30 day demand we will file for foreclosure. It’s a non judicial state so sale date will be February / March.
So they either sell it, refinance it or another way to get the $ - I guess the borrower can file bankruptcy but that would be interesting since he gave up his interest in the property.
So we could easily get a motion for relief
Oh that's really interesting - I didn't expect to hear from someone on this side of the process. Are you a commercial lender I'd assume? Did you guys decide to call it due cause you had concerns about the loan, Or just a generally policy you always call all loans due if title changes hands? In this case, what notified you that this had taken place?
2 additional questions:
1 - If someone responded saying that they are putting the home on the market, would you guys still move forward with the foreclosure process? Or if they have a contract to purchase at the end of January? Is the foreclosure process enough of a hassle you'd consider giving that allowance or extra time?
2 - If they deed it back to the original owner, would you guys reverse calling the loan due?
Thanks for sharing!
1. We run a private credit fund investing in mortgage notes. We bought this one on the secondary market. We called it due because we saw it traded hands, when we were doing due diligence we saw it traded hands.
2.If they are putting it on the market, its that up against foreclosure timeline. No waiting for us. We have seen people sham sell where they listed it above market or had agent not respond.
3. If they deed it back to owner, we would not reverse it.
7e investments53 Reviews - 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
No, but I spent the first half of my career in banking and I called a lot of sub-tos. The issue for us as the bank was the we underwrote the borrower...not the person trying to quasi-assume the loan. In most case, the person stepping in to the buy the property was not someone that qualified for a loan. The seller's normally don't understand how much selling sub-to can jack up them up financially if the person buying the property stumbles.
Quote from @Chris Seveney:
Quote from @Luke Rentz:
Quote from @Chris Seveney:
@Luke Rentz
I am going through it at the moment, but I am going through it as a lender.
I have had our attorney send the demand letter based on item 18 of the mortgage:
Transfer of the property or beneficial interest in borrower
After the 30 day demand we will file for foreclosure. It’s a non judicial state so sale date will be February / March.
So they either sell it, refinance it or another way to get the $ - I guess the borrower can file bankruptcy but that would be interesting since he gave up his interest in the property.
So we could easily get a motion for relief
Oh that's really interesting - I didn't expect to hear from someone on this side of the process. Are you a commercial lender I'd assume? Did you guys decide to call it due cause you had concerns about the loan, Or just a generally policy you always call all loans due if title changes hands? In this case, what notified you that this had taken place?
2 additional questions:
1 - If someone responded saying that they are putting the home on the market, would you guys still move forward with the foreclosure process? Or if they have a contract to purchase at the end of January? Is the foreclosure process enough of a hassle you'd consider giving that allowance or extra time?
2 - If they deed it back to the original owner, would you guys reverse calling the loan due?
Thanks for sharing!
1. We run a private credit fund investing in mortgage notes. We bought this one on the secondary market. We called it due because we saw it traded hands, when we were doing due diligence we saw it traded hands.
2.If they are putting it on the market, its that up against foreclosure timeline. No waiting for us. We have seen people sham sell where they listed it above market or had agent not respond.
3. If they deed it back to owner, we would not reverse it.
So I’m assuming the asset is worth more than the loan you bought. So you’re not calling the loan due because you are ticked that somebody swapped title, but because this is your opportunity for a faster profit???
- Did you call Loans due even if it meant your bank would lose money on the Property?
Quote from @Doug Smith:
No, but I spent the first half of my career in banking and I called a lot of sub-tos. The issue for us as the bank was the we underwrote the borrower...not the person trying to quasi-assume the loan. In most case, the person stepping in to the buy the property was not someone that qualified for a loan. The seller's normally don't understand how much selling sub-to can jack up them up financially if the person buying the property stumbles.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Joe S.
We are calling the loan because the contract was broken and we have the right to do so. We did not underwrite the current owner of the asset.
it can have significant impact on a lenders portfolio. It’s a huge risk, especially if it goes non performing so why should we take on additional risk?
As I always tell people, all I want is you to follow your contract and we do the same, if that occurs then that solves 95% of all problems.
7e investments53 Reviews - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes2y
Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
@Doug Smith: And, most importantly, if it isn't handled properly by the bank, bankers lose jobs. :-)
Years ago, I helped an 80 year old woman who was being foreclosed on by KeyBank. Not sure if they still exist. But I sent money as directed in writing, to stop her foreclosure. The bank took it to foreclosure anyway. I made a couple of selective phone calls, the banker was fired and the foreclosure was reversed. I got cookies.That couldn't have been a pretty conversation at the bank. Lesson learned, the bank will enforce their rules and you have to enforce yours.
Quote from @Chris Seveney:
@Joe S.
We are calling the loan because the contract was broken and we have the right to do so. We did not underwrite the current owner of the asset.
it can have significant impact on a lenders portfolio. It’s a huge risk, especially if it goes non performing so why should we take on additional risk?
As I always tell people, all I want is you to follow your contract and we do the same, if that occurs then that solves 95% of all problems.
You made mention you’re calling the loan due because you have (the right to do so.) It is my opinion it is in your best interest to call the loan due because it’s in your best financial interest to do so not based on morals or somebody breaking a contract. It’s a business decision based on what the asset is worth compared to the note balance. A smart Savvy businessman like yourself bought the note at a substantial discount and this is your chance to cash in on the spread early.
Now, if you had not bought the note at a discount or the asset had dropped below what the note was worth and somebody was making timely payments would you call the loan due even though you had the right?
As always, thanks for sharing your expert knowledge.Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
I am not a Pace Morby disciple. I am one of those who comments with distain over all the fake reviews and brand new newbies, flooding the market that he uses for marketing and self promotion purposes.
The majority of properties that I have bought over the course of 20 plus years of investing and buying some properties Sub2….The majority of the properties we bought Sub2 were from borrowers that were in default on their loan, which I brought current in the thousands of dollars. Then I typically did a rehab making the asset more valuable. Now the banks's non-performing loan starts performing and the asset that was in need of repair is now in better condition.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Joe S.:
Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
I am not a Pace Morby disciple. I am one of those who comments with distain over all the fake reviews and brand new newbies, flooding the market that he uses for marketing and self promotion purposes.
The majority of properties that I have bought over the course of 20 plus years of investing and buying some properties Sub2….The majority of the properties we bought Sub2 were from borrowers that were in default on their loan, which I brought current in the thousands of dollars. Then I typically did a rehab making the asset more valuable. Now the banks's non-performing loan starts performing and the asset that was in need of repair is now in better condition.
Joe that is the way its suppose to work and exactly how we did our sub toos as you point out though when this technique starts to get marketed to the NO money no Credit RE crowd its going to cause some severe headaches for Sellers and Buyers.
you hit the nail on the head of Chris's situation I am guessing and if I was buying paper like his fund does I would do EXCATLY what he is doing buy discount have the right to accelerate and get cashed out spins the APR meter dramatically for an investor or a fund.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Account Closed:
Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
@Doug Smith: Back in the day, was there a department that handled Due on Sale? Could they be contacted for making a purchase/buying the loan?
not speaking for Doug.. however we used to deal with the loss mitigation department when doing foreclosure rescues.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Account Closed:
Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
@Doug Smith: Back in the day, was there a department that handled Due on Sale? Could they be contacted for making a purchase/buying the loan?
Hi Ken, It depends on the bank. When the bankers decide that there might be a troubled loan...whether it is delinquent or not, and they are at a bigger bank, they might transfer the file to "Special Assets". That's a department where the goal is to work that customer out of the bank in some way. As I mentioned they don't have to be delinquent. Perhaps when they did the renewal of a line of credit for a business customer, they saw signs that the business might be heading South. They want to start working out of the relationship while there is still time to do so. They will often sell a loan at a discount if it's really bad. That being said, if you call and say "do you have any delinquent loans to sell?", they might offer a discount. If you go and say "I want to buy the loan on 123 Main Street", they will likely quote you the payoff balance and not discount it. In smaller community banks, their Chief Credit Officer and their team might be handling the workouts in conjunction with the loan officers. I hope that helps.
- 2yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
@Luke Rentz
First I have never done this but have heard alot about it and have some questions as well.
I have heard that for many banks they don't want to own property they want payments so for most of them if they are getting paid they are unlikely to cause a stink and may never even know a property has changed hands.
I understand with rising interest rates they may try and find these to get rid of the lower interest rate loans?
Also heard about people using a trust with the owners name in it to make it look like estate planning or asset protection instead of a sale. The beneficiary is not recorded only the trustee so this could be a good tool to use in subject 2 deals.
I would certainly consider doing this but I've had no problem finding plenty of paid off properties with motivated sellers and distressed properties.
- 2yDoug SmithPro MemberLender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
Quote from @Account Closed:
That's Golden information. I certainly appreciate it!Quote from @Doug Smith:
Quote from @Account Closed:
Quote from @Doug Smith:
How exactly would we lose money on the property by calling the deal? We didn't underwriter the buyer. A borrower came to the bank, completed an application, we vetted the borrower, and agreed to make them a loan. We deployed thousands and thousands of our capital to a specific borrower that met very specific guidelines as set forth in our credit policy manual. That credit policy manual is approved by the board of directors, Federal, and State Regulators. When a bank deviates from credit policy, the portfolio is downgraded which impacts the bank's balance sheet. Then...here comes someone that induces the seller to violate a covenant of the loan agreement by transferring title without the bank's approval...someone we did not underwrite. Then...here come the regulators to downgrade the loan impacting the portfolio. A sub-to impacts a lender much, much more than Pace disciples realize...so yeah, I called loans when we discovered them.
@Doug Smith: Back in the day, was there a department that handled Due on Sale? Could they be contacted for making a purchase/buying the loan?
Hi Ken, It depends on the bank. When the bankers decide that there might be a troubled loan...whether it is delinquent or not, and they are at a bigger bank, they might transfer the file to "Special Assets". That's a department where the goal is to work that customer out of the bank in some way. As I mentioned they don't have to be delinquent. Perhaps when they did the renewal of a line of credit for a business customer, they saw signs that the business might be heading South. They want to start working out of the relationship while there is still time to do so. They will often sell a loan at a discount if it's really bad. That being said, if you call and say "do you have any delinquent loans to sell?", they might offer a discount. If you go and say "I want to buy the loan on 123 Main Street", they will likely quote you the payoff balance and not discount it. In smaller community banks, their Chief Credit Officer and their team might be handling the workouts in conjunction with the loan officers. I hope that helps.
I've worked with loss mit a lot in the past, at various banks, when I was bailing people out of foreclosure. But, the turnover in employees was high. I knew there had to be a person or department that was senior enough to be stable and to be able to make decisions that weren't actually to the foreclosure stage.There's no such thing as stable in a bank...lol. We would just get comfortable and loving our job and then a merger would happen or some knucklehead at the top with no real lending background would come up with some "great idea" and shake things up. I am so much happier once I got out and we started this company prior to the last crash.
Quote from @Doug Smith:
Hi Ken, It depends on the bank. When the bankers decide that there might be a troubled loan...whether it is delinquent or not, and they are at a bigger bank, they might transfer the file to "Special Assets". That's a department where the goal is to work that customer out of the bank in some way. As I mentioned they don't have to be delinquent. Perhaps when they did the renewal of a line of credit for a business customer, they saw signs that the business might be heading South. They want to start working out of the relationship while there is still time to do so. They will often sell a loan at a discount if it's really bad. That being said, if you call and say "do you have any delinquent loans to sell?", they might offer a discount. If you go and say "I want to buy the loan on 123 Main Street", they will likely quote you the payoff balance and not discount it. In smaller community banks, their Chief Credit Officer and their team might be handling the workouts in conjunction with the loan officers. I hope that helps.
Hui Doug,
I have some questions about this.
[1] Large bank; would I be likely to speak to a "Decision Maker" about selling the loan, or would it be more of a "proposal type bid" and then need to go to a Committee or EVP of XYZ in some other city to make a Sell decision (???)
[2] Can either the small bank or the large bank allow me to assume the existing low interest loan based soley on my creditworhtyness (and whatever lender fees), or can they in-house make me a loan to me for this poorly performing asset, or will I need to bring cash, or a pre-approval for a loan from another bank (???)
[3] Will buying the 1st loan trigger a foreclosure by a 2nd note holder, meaning will I need to pay off both 1st and 2nd to assume ownership; would this differ by state such as Texas or California or Florida (???)
[4] Does the original lender foreclose, or would I have to do that (meaing would I be buying a foreclosure or a poorly/non performing loan that I would need to foreclose on (???)
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