Can I keep the mortgage in my name while having an LLC?

Question

Hello! I own a single-family house in Portland, OR in my name. Purchased in October, 2021, for $528,000. 30-yr fixed rate mortgage at 2.875%, $85,000 down payment. Currently ~$425,000 left on the mortgage. WIth property taxes and insurance, my monthly mortgage payments are roughly $2,290. I have put about $66,000 into various repairs and improvements.

I am looking to move in with my girlfriend (who also owns her own house) and renting out my current house. My main goal is to maintain the house and preserve my asset, especially given the low interest rate. I am not particularly concerned about making a profit. I intend on hiring a property management company so that I can rest assured that things are being taken care of. Again, I am not very concerned about making a profit, just want to make sure that the house is taken care of and I break even. 

I am learning more about the benefits of creating an LLC for my rental operations, even if it is just one house. However, I am worried that the holder of my loan will not let me transfer the current mortgage to the LLC without refinancing. I have not yet reached out to my loan holder to find out for sure, because right now I am trying to explore all possibilities before getting them involved. I desperately want to be able to maintain my current mortgage at the 2.875% rate. 

I had a wild idea and I’m unsure if it is realistic. Can I form an LLC, have the LLC lease the house from me, and then use the LLC to rent out the house to someone else? Is that a way I could maintain the mortgage and title in my name, while still having limited liability?

Angela Harding · Answer

Any houses that we carry conventional financing on we don't play with changing deed to LLC's. You can put it in a living will trust as that does not violate a due on sale clause. There may be other trusts that can hold the deed also but it is very state dependent. That is just a little FYI cause trusts are just a blizzard of red tape for law suits. In my opinion, just lease this house and make sure your lease is solid with your state requirements. Screen your tenant well. Most importantly, change your insurance to non-owner occupied and carry a larger liability on it. We carry one million liability on all our rentals. I also carry 3 million in liability on my management company and a one million personal umbrella policy. In 20 years I've been sued one time and my insurance stepped in and handled the law suits. People will sue even if they get drunk and fall down a couple steps. You insurance will step in and protect you cause they don't want to pay a big amount either. They have to prove it was your fault. In my case a handrail failed that we were in the process of fixing. It was a holiday and apparently a little wine was involved. In the end they settled with her and she got $10,000. After attorneys and medical bills, she took home about $2500. Never even went to trial, just mediation. It wasn't my fault but that is the way the system works. I paid a $500 deductible. And that is just what happens. Insurance will settle quickly to save money as trials are crazy expensive. It is my opinion that insurance is more important than the entity being on title.

Travis Timmons · Answer

You can deed the property to an LLC without refinancing or changing the loan. If your lender/loan servicer does take any action, you can just undo that and deed it back to yourself.

Make sure you keep all finances and accounts separate if you do deed to an LLC. If you are co-mingling accounts, you lose the liability protection of the LLC. Whatever you do, keep it simple. Don't let an attorney convince you that you need to pay thousands of dollars for their services or let a lender convince you that the due on sale clause is coming and you need to refinance.

Sarah Downey · Answer

Hi Warren,

You should be able to work with a local title company and execute a quit claim deed to your LLC without having to make any changes to your mortgage. It is a really easy process and can be done quickly.

This way, you don't need to mess with your current mortgage at all and can avoid the lease scenario you mentioned.

The mortgage will still be listed in your personal name if someone does a title search, but the ownership of the property will be listed in the LLC and should provide you with more protection.

Erik Estrada · Answer

Depending on the loan type, be careful doing a quitclaim deed into an LLC. Many lenders have clauses set up to call the note due if you make this change.

Erik Estrada · Answer

You could look into refinancing into a DSCR loan. Lenders will allow you to close in an entity.

Warren Shinnamon · Answer

Exactly, this is my concern. What do most folks like me (live in primary home, mortgage in name, want to move out and rent home) do to keep their mortgage and still limit their liability?

Greg Downey · Answer

@Warren Shinnamon, regarding the umbrella policy, I was once told that asset protection is like an onion. The outermost layer is an umbrella policy, followed by using an entity, followed by landlord policies etc. I think your "lease to an LLC" idea would be more headache than it would be worth as now you would have to justify that entity's existence as a property management entity... Talk to a CPA, but that sounds a little too complicated.

Sarah Downey · Answer

I am not sure about the umbrella policy. My guess is that it would definitely be helpful, but I think a lot of the benefit of the LLC is having the property separated from your personal assets. That way, if you have legal issues with your tenants, they cannot go after your personal assets.

Warren Shinnamon · Answer

Hi @Sarah Downey, thank you for the response! I am wondering if I even need an LLC. Would an Umbrella insurance policy be enough to protect me, if I don't plan on expanding my portfolio? I only plan on renting out this one property.

Can I keep the mortgage in my name while having an LLC?

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