2 specific lending questions (schedule c / llc structure)

[Travis M.]

I just got approved for a mortgage in Humboldt, California.

It was an absolute nightmare with self-employment income being verified by fannie mae/freddie mac rules, and not being able to use income from new LLC's I have as they don't have 2 years of history. I made it through, but it was brutal.

Current problem: ALL my business for the last 10 years is Schedule C sole-proprietor business on my personal name. I want to move it OFF my name onto a new LLC (as all commingled funds make it very difficult to create a personal budget), but I don't want to run into the same headache if I want to refinance/get 2nd mortgage ~1-2 years from now.

Question 1: After a lot of back and forth with my loan officer (who is being very vague because she thinks I want tax advice, even after repeatedly saying I only want advice specifically related to loan approval), she has stated that if I "move my schedule C to a LLC" then A) I must be the sole owner, and B) I must wait 12 months on that new business. My question (which I can't seem to get answered) is... do I need to do anything "special" beyond those 2 things when setting up the LLC to prove that "this new LLC is replacing my sole-proprietor business as the exact same business", or do I simply form the new LLC, stop accepting payments to personal bank, accept payments to new LLC, wait 12 months, and then if I submit my LLC formation they will just take my word for it that it's the same business?

Question 2: I want to use an anonymous Wyoming LLC with a registered agent, as they're very good for privacy and asset protection. Do you think this will cause a problem with fannie mae/freddie mac approval? I talked to the LLC attorney and he said they provide the following 3 documents to prove I'm the 100% sole owner:

• 1. resignation of organizer (legal letterhead)
• 2. operating agreement
• 3. certificate of incumbency (notarized)

[Caroline Gerardo]

Online WY attorneys love to advertise about privacy. Plan not workable with today's GSE government loan. You need two years LLC tax returns that show income passing to you on your personal IRS which then makes the privacy hokum. Today is August you won't file two years IRS returns with the LLC showing until February 2024. My crystal ball shows we will still be doing a 4506c or some form of asking the IRS for your actual transcripts as ability to repay is not going away.

When you change the deed to a LLC it's a sale, a transfer deed and property taxes increase and you may have a capital gain who knows or loss depending on the market.

No 2nd available today for investment vested in LLC, only hard money. Many lenders are not offering 2nds at all right now Wells and Citi slammed that door, expect more to follow.

She's right, needs to be single owner. She's wrong about 12 months. Current schedule C business closes and the income no longer exists, that is 0. New business needs 2 year filing not just 2 since you filed with the Secretary of State.

If you have an attorney or fake guy show as owner of the new LLC and you don't flow the LLC income to be taxed on your personal IRS that would be wrong today. I'm not a tax advisor.

Lender's don't care about resignation on letterhead. We check with all tax entities directly. Your CPA will need to write some letters as well. Selling the company may also have income tax consequences, ask your accounting expert.

Why do you need this "protection"? 

No one can tell you what rates will be in 2/2024. No one can tell you what lending guidelines will be in 2/2024. I guess there will be more digital tools to snoop on information and rates will increase, but that's my crystal ball talking.