Rental mortgage question

[Matthew Johnathan Newton]

I've been looking into purchasing my first property so I started an LLC to help protect my personal assets from potential lawsuits. I was going to purchase it through the LLC. The banks have said the mortgage needs to be in my name but the title can be in the LLC, will this work to protect myself if I were sued or does both the title and mortgage need to be in the LLC's name?



[Frank Chin]

@Matthew Johnathan Newton

Your looking at the transaction from YOUR perspective, not the banks perspective. The bank makes no money loaning you money at 2.75%. It makes money originating a mortgage, collecting the points, and then selling the mortgage, collect the money and make another mortgage. They would have trouble selling a mortgage made to an LLC. The mortgage buyers would only buy mortgage fitting a certain profile i.e. mortgage in your name. So if they made a loan to an LLC for $200K, fine, it's dead money, unless they think making 2.75% a year is a great return.

Yes, the bank can make the loan to an LLC and have you personally guarantee it which is what they did with my SBA loan. But that's a whole different business.

You really think if your property is in an LLC, something happens, nobody can sue you, you can stick your tongue out at them. Not so. I bought a business in an S Corp thru an LLC, the previous owner had a bad accident, was sued for $3 million. He only had $1 million insurance so both he and his S Corp was sued, him for the $2 million. I was involved as I took over his employees and they had to take time off for deposition. He was under the impression he can't be personally sued.

I was curious because I thought with an LLC and S Corp, you're protected. I asked attorneys involved and they ask me if he comes to the office, and if he had a manager. I said he comes in every day. I ask that because I wanted to know if an LLC would protect me and I bought his business through an LLC. I was told as he comes in, takes charge, he is personally responsible for things that happen. My insurance agent told me the same thing, litigants sued both the entity and owner, and had me purchase an endorsement in my LLC liability insurance that covers me personally, as people will sue the entity and me anyway. The owner who's sued tried to get the suit against himself dismissed but was denied.

The one way for me to avoid personal liability is hire a PM with his own E&O insurance. If there's a slip and fall, snow not shoveled, someone got hurt, I can point to the PM, and say he's in charge, not me.

If you're just starting out, the LLC won't do much for you. Get adequate insurance.