Flagstar Bank & LLC Transfer

[Steve Mitrano]

Anyone have any experience with transferring a Flagstar Bank mortgage into an LLC? I've had people tell me not to worry about it and to just do it, and I've had other people say the bank will call the loan due. My lawyer told me to send the bank a letter notifying them that I'll be transferring a title, but I've had other people tell me to call the bank. I figured calling would be easier, and they said I can't transfer the title or they will call the loan due. I'm just wondering if anyone with a Flagstar loan has done this in the past without any issues?

Otherwise, what are my options? Refinance into an LLC?

Thanks in advance!!

[Bjorn Ahlblad]

@Steve Mitrano I have seen numerous banks reacting if an asset is being transferred into an LLC. I think most will call the loan and want to sell you a new one. I think it may depend on whether or not their software catches the change. Banks these days are not run by people anymore.

[Steve Vaughan]

Hopefully your lawyer also mentioned insurance- title and hazard.

A quitclaim deed transfer can hurt your title chain and title insurance.  The property is insured on your behalf, personally.  Do you plan on using a quitclaim deed? 

Whie DOS lender risk may or may not be high, being ininsured is... well, enjoy your 'asset protection'.

[Scott Smith]

I do not have any loans through Flagstar Bank, but I would talk to them prior to moving it into the LLC. There are often automated flags that will be triggered if you do it, so it's best just to know how they will react. I would encourage the use of a warranty deed to the situation that @Steve Vaughan mentioned above. If the bank will call their note if you commit to the transfer you can also check out this article as one strategy that has been used to work around the issue.

This is not legal advice, just my opinion as a real estate investor.

[Oleg Shalumov]

@Steve Mitrano if it is transferred to LLC they can call the loan by law, and if they have not done it for someone else - would you risk to check if they will do it for you?

Tell us why do you want to move it, maybe someone can give you a different/better advice to resolve your problem?! 

[Matthew McNeil]

Some of the advice you're getting here is not entirely accurate.  

Flagstar may exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC). Regardless, you should first talk to your lender and tell them exactly what you’re planning and get their approval. If they say "No" then ask them to support that with documentation to avoid a boiler plate response.  And, @Steve Vaughan is correct; use a Quitclaim.

Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.

Hope that helps.  

[Iris Wu]

@Steve Mitrano, Hi, Steve, do you mind providing an update on what you end of doing in this case? I also have few loans with flagstar and would like to explore changing from personal name to LLC. Thanks in advance, Iris

[Steve Mitrano]

Quote from @Iris Wu:

@Steve Mitrano, Hi, Steve, do you mind providing an update on what you end of doing in this case? I also have few loans with flagstar and would like to explore changing from personal name to LLC. Thanks in advance, Iris

Hi Iris,

I ended up transferring ownership to the LLC and didn't have any issues. Hope that helps..

[Matthew Drouin]

@Steve Mitrano this thread got bumped up in my feed and looks like you found a resolution but just to add.  Another work around that isn’t discussed much is working on a strategy with your insurance company to protect your other assets in the event of a claim.

But also, it wouldn’t be a bad idea to consider getting the financing into your LLc name with a community bank and pulling cash out if you have substantial equity.

Right now, since the loan is in your name, it shows up on your personal credit report.  Once you start stacking more and more property loans into your personal name, it can bleed into your personal credit worthiness.

This bit me in the butt when I wanted to refinance my own house when rates were in the 2% range.  Since I had a couple million in mortgages in my personal name, I couldn’t do it.  The banks thought I was a dead beat because of my debt to income ratio.  Plus no matter what I did I couldn’t get my credit score above the high 600 range.  Once I did a portfolio refi, I got all those loans off my credit report and my credit shot up into the 800s very quickly.