Subto Deals: Cashing Checks Made to the Seller

If you do subto deals, sometimes you get a check made out to your seller, but according to the agreements the funds are actually for you. How do you cash these checks?! There are several ways to get the job done, depending on your situation.

Author: Caleb Christopher

The Problem: The check is in someone else’s name

You have a check made out to John Smith, rather than to your company HomeBuyers LLC. When an insurance company or mortgage company issues a claim payout or refund (or a utility company or whoever else!), they naturally write the check to your seller. But you have a POA. But you have an Assignment of Insurance Proceeds. But you have [whatever-document]!

Even if they’re willing to rewrite the check, they may not be allowed to due to company policies.

Method 1 - Reissue the check

The cleanest method will be to have a new check sent to you, so you can endorse and deposit it. They often can’t just send a new check to a person who isn’t named on the account/policy, even if you have a document like an “Assignment of Insurance Proceeds.”

Here’s how to have it re-issued so it complies with internal requirements that checks be made out to the name on the account. Using your POA or Assignment of Insurance Proceeds or other document to establish your authority and/or the fact that the check is due to you, you ask the issuer to write a new check. When received, you can sign as your company and deposit the check!

Examples of who to have the check made out to:

In these examples, “C/O" stands for “care of,” and “FBO” stands for “for the benefit of.” So by using this language, it’s clear that HomeBuyers LLC is allowed to cash the check in some custodial capacity for John Smith.

Method 2 - Seller assigns the check to you

Have your Seller endorse the back of the check, but also assign it to you or your company. They sign, write the assignment, then you sign too.

Examples of how to endorse the back of the check and assign the pay-to:

This is also a great way to pay contractors with insurance money. You can assign the check to the contractor

Method 3 - Use your power of attorney to sign & assign the check

Caution: This is not a preferred method, and may be rejected by the depositing bank (yours), especially if the bank doesn’t have a copy of the POA on file, and once you endorse the back of the check, you can’t white it out. If it’s rejected, you’ll have to request a new check to be issued.

Again, the recipient signs (you sign as POA), you then write the assign-to portion, then you sign as the assignee.

Examples of how to use POA to assign the check to yourself:

That wasn’t so bad!

This works for insurance checks, checks made out to your company instead of you (or vice versa), for payment of contractors, and really any other circumstance where payment needs to be forwarded to another party than the one originally named on the check.

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