HML / LLC

[Account Closed]

Hello all,

Just began shopping around for hard money loans, and the first one I communicated with requires that you form an LLC in order to receive the loan. Is this common for most hard money lenders? Is there a reason for it?

I know a lot of people flip houses under their name, especially for their first or second projects, so being that this is my first potential project should I shop for another, or just bite the bullet and form my LLC?

[Jeff S.]

An LLC is not required, David. However, virtually all hard money loans now require a business purpose. Flipping homes in your name (i.e. as a sole proprietor) is certainly a business purpose so long as you don’t intend to move in once you’re done, plus a million other restrictions. Lending to an LLC, while not conclusive alone, just strengthens the business purpose argument.

An owner occupied loan, among many other uses of the money, would be for a consumer purpose and subject the loan to the SAFE Act, NMLS, Dodd-Frank, RESPA, TILA, the CFPB, and an entire nightmare of additional acronyms and regulations for the lender. Everyone is just trying to be cautious.

Not to give legal advice, but buying in an LLC is something you might want to consider from an asset protection point of view anyway. Also, if you know a lot of people who flip in their own name, why don't you call one of their lenders?

Jeff