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Quit Claim Deed to LLC
I have recently purchased a few rental properties with a partner. One property is in his name and the other two in my name. We just submitted the paperwork for our LLC. I've read on here and have been told the best thing to do is a Quit Claim Deed. Any issues other than the mortgage company calling the mortgage? What's the easiest/least expensive way to do a Quit Claim Deed?
Brandon Redfern
I have a few properties in my personal name that im putting under my S-Corp. my title company is charging me about $100 per property for a quit claim deed. Sometimes you can "group" the properties to save on fees..
There is no real reason to use a Quitclaim over a Warranty Deed, but I see no drawbacks either. The forms for deeds are extremely simple. You can usually use the exact deed you gained title in and just change the names. For an LLC you usually list the state of incorporation as well as the principal place of business. Many states have forms for deeds in their legal section of their statutes or Secretary of state sites. Again if you have little time it may be cheaper to have a title insurance company or even an attorney draft your deeds. As long as your lender is on board it should be good. The lender may insist on a new mortgage lenders title policy if they decide they do not want to call the loan. Good luck. I think doing an LLC for a joint venture is a good idea. Pay attention to getting a good operating agreement that clearly spells out the agreement between you and the other party.
Brandon Redfern What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are personally on the hook and can be personally sued, for everything you personally own. Some people will say, "Take out a quality Umbrella Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies.
If you think you Quit Claim the property, to a LLC, or a Land Trust, you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.
If you bought the property with title insurance and then quit claim to your entity you are voiding your title insurance. You need to use a limited warranty deed in order to keep your title insurance in place.
@Thomas Franklin I'm not sure I understand what you are trying to say with the liability, even though I'm in insurance and have never seen an ambulance chaser go around or go over the umbrella, I thought I had made it clear that I want to change to a LLC. I'll take the added protection.
How common is the acceleration clause called? From what I've read on here it seems like almost never. But that may just be a few experiences that I happen to read.
As to your third paragraph, I have already purchased these. Moving forward I plan on buying them in the LLC. But since this is how we've done it is there a better thing to do than Quit Claim deed or do a warranty deed? And is there a specific time that we need to (or should) wait to bring it over to the LLC?
@Brandon Redfern I can read and am fully aware you want to close, in a LLC. Since you are in the Insurance Industry, have you heard the phrase "Professional Tenant?" What you are not realizing is a tenant can come not only after your Personal Assets, but also every Investment Property held in your Personal Name. In my opinion, you are gambling, with your Financial Future and Well Being as well as everything you have worked, to create. I have heard horror stories, from Investors getting burn because he/ she thought they could outsmart the system, wanted to be frugal and cut corners, knew more then others, were stubborn, etc.
For financing 2-4 Unit Properties, if you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry. I do not own, nor have never owned a SFR as a Rental Property and cannot speak, from experience.
You seem to be dead set on transferring your properties, to a LLC, and you are missing my point and overlooked the last sentence, of the second paragraph I wrote. The probability that a lender discovering a Title Transfer occurring is at least 50%. A Title Transfer is a Title Transfer. There is no specific wait period. Depending on the lender, they will most likely activate the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Unless you are using a Portfolio Lender, your mortgages have likely been sold at least once and now you are making your Mortgage Payment, to another lender unless they are relatively new loans. On my personal residence I have had my mortgage bought and sold four times, in less than two years. People I know have told me a similar thing has happened, to them. Consumers have no control if or when a loan will be sold, to another Financial Institution.
I invite you do not listen to me or anyone, on BiggerPockets. Disregard my 18 years, of REI Experience. Read every Promissory Note you currently have. You will discover, for yourself. Disregard the opinion, of my seasoned legal team. If you have a well versed and competent Real Estate Attorney, pay him/ her to provide you a legal opinion regarding the potential ramifications. Visit a few banks, talk with them, tell them that you want to close in a LLC, and see what type of Mortgage Products these lenders will you. Ask these lenders about an "Acceleration Clause" or "Due on Sale Clause" and how it works. Do your own research, leg work, and pay a few hundred to a few thousand dollars, for a written legal opinion. In my opinion, this is the best way, for you, to move forward and learn. Some people need to get burned and loose everything before he/ she learns. I will not comment further. I wish you well, in whatever decisions you make and actions you take.
@Thomas Franklin I don't think we are on the same page here. Maybe it's my lack of experience. I understand that I should do my research and I plan to. But I thought that one of this site's purposes is to do just that, learn and research. I will consult with an attorney but I'm hoping to learn from you guys the right questions to ask or places to look. You keep bring up the acceleration, I fully understand that it's in the contract, I brought it up in my OP.
On a side note I do understand what a Professional Tenant is and that they can come after your other properties. If you properly insure yourself with a PLUP and or CLUP then you will have protection. I think an LLC helps everything go smoother and the fight would be shorter. Which is why I've never once considered keeping them in just our names. You are preaching to the choir, however I do believe in Umbrella policies and know they provide adequate protection for MOST scenarios.
All that said, I would love to hear from anyone else on how they've done this in the past.
Thank you @Jerry W., I had not heard of using a Warranty Deed over a quit claim. So if I go that route I can put our LLC on title and have no other issues other than the acceleration clause?
@Stan Sugarman so the warranty deed keeps everything the same, we just can transfer ownership of the property to the LLC? Sorry if that's a dumb question, just trying to figure this out.
Thanks!
You would use a limited warranty deed to transfer the ownership. It should be a minimal cost to pay an attorney to help you with. Most lenders do not have an issue with a transfer to an entity you control the acceleration clause is targeted at a sale to a 3rd party.
Thanks
@Brandon Redfern, the laws in each state can differ a lot. That being said I have rarely seen an acceleration clause being activated over a transfer to a wholly owned LLC. @Stan Sugarman is dead on point in that if you transfer to a third party they will be aggressive over that. In the situations I have encountered with banks and acceleration clauses they usually tell you transfer it back if it makes them uncomfortable. I have found that banks charge about 1% more interest on loans the entities than to individuals, and the loan terms are usually much shorter and are adjustable rate mortgages (ARMs), that usually come due between 3 to 5 years. I have actually never found an attorney try to get around an umbrella policy. They very much want to get into the huge deep pocket they afford. They also try to name you personally just to put pressure on you to settle. I was unaware that a Limited WD will not negate title insurance. I just assume that if a title issue did arise I would simply have my current entity sue my previous entity or me, then invoke my prior title insurance policy on it's behalf.
The type of deed doesn't matter, it's whether the grantee meets the definition of Insured under the existing title policy. Suing the Grantor for a breach of warranty may or may not work in my opinion. If you're past the statute of limitation you may be out of luck. If the WD excepts restrictions and easements of record and current years taxes and the problem is related to one of them there probably isn't a viable cause of action. I'm not attorney and this isn't a legal opinion. It's just one man's opinion.