LLC and Property Title and Due on Sale Clause

[Robert Ebeling]

I understand you want to put a piece of rental property into an LLC for personal asset and liability protection, BUT how do you do that without triggering the "Due on Sale or Transfer" Clause if you still have a mortgage on it?  Do you have to pay off the property first and then do that? And ALSO if you did transfer the property out of your name would you still be able to borrow against the equity in it? Thank you for your insights.

[Steve Vaughan]

If the 'piece of rental property' is a little house, I'd argue an LLC is not the end all be all. While 'protecting your assets', you are negating your title insurance and hazard insurance because you personally are the named insured and you will no longer own it. When you change your insurance, the mortgage co will be notified. DOS violations are a real risk. Now you need to refi into the commercial financing world of higher costs and shorter terms. Doesn't sound like asset protection to me.

All this for an unproven precedent of bullet-proof liability protection.  Some place in a Land Trust.  Not all areas recognize them.  Here a LT is what cities use to protect land from development. 

I place my commercial 5+ unit commercial apts in LLCs.  My little houses I own personally, I act above board at all times and I carry good insurance.  8 houses for 13 years hasn't been a problem.  Not once have I been sued or had any trouble.  I've been eligible for excellent insurance and loan terms.

This topic has been debated and blogged about tens of thousands of times here on BP.  Search - I've transferred my little residential property into a commercial entity, now I am screwed because....  financing, insurance, title chain problems, can't sell,  etc.  

Get competent legal and tax advice before acting, of course.  Happy research @Robert Ebeling!