LLC transfer approval from a large conventional lender (PART 2)

[Spencer Hilligoss]

This is a followup to PART 1, posted last month: "Avoiding Due on Sale clause with a conventional lender. A saga."

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This is a "learn from my mistakes" example for other new investors. If you intend to borrow from a big bank in your own name and transfer property ownership into your biz entity (like an LLC after) for liability protection, there are a few key learnings about doing it the right way. Or, at least... doing it more easily than I did!

Now, let's pickup where the last post left off...

Step 11: Re-wrote our Operating Agreement: The lender needed to see a modified Operating Agreement for our LLC before they were comfortable giving final approval on the transfer. They advised that once I provided sufficient documentation to meet their requirements, both my partner and I would need to sign "Guaranty of Indebtedness" forms, individually. That would be the final step. They said they would mail them to me.

Thankfully, the bank provided the specific language they wanted to see in our Op Agreement... and I ended up drafting the revised Op Agreement, myself. Scanned the new copy and e-mailed it the lender. Note: At this point, I knew very specifically the one reliable, real human being to work with at this bank. Any time I emailed or called the bank, I spoke directly with her or asked for her when I called.

Week of 11/13/2017

Step 12: Crickets, again: 2 weeks after sending in the modified Op Agreement, I hadn't heard back on the decision nor on the forms required to complete the final step. So, as I'd done half a dozen times throughout this process... I called my key point of contact at the bank and politely asked:

• 1) Do we have a decision?
• 2) If it's a "yes"... when are the forms going to arrive?

She said the decision was made a week ago and that the forms should have arrived by now. I confirmed that they still had the correct address on file and advised that it sounds like the forms got lost in the mail. She agreed and mailed new forms. 

Week of 11/20/2017

Step 13: Signing "Guaranty of Indebtedness" forms: The forms arrive in the mail, and of course... they have to be notarized (god forbid the final step be straightforward and painless.) We knock out the signatures and notarizing in a couple days and send the forms back.

Week of 12/11/2017 (This week)

Step 14: Crickets (for the last time): At this point, I know better than to wait around for snail mail... so I call the bank and ask a rep to read what is logged in their CRM on my account notes. To my sigh of relief, they let me know that the process is completed and the transfer is approved.

Step 15: Deeding the LLC to our own business: Our attorneys were already scheduled to come to our house to help form a trust for our family, and they agreed to take care of the deeding process on our behalf. The lender approval came through 2 days before the appointment with our attorney. 

We signed the documentation and thanked our lucky stars that this comical process was complete. As of yesterday, the saga has concluded. Not nearly as fun as "Return of the Jedi."

Learnings:

• Secure financing from flexible, responsive partners: Use local/regional banks whenever possible, or raise private money
• Borrow as an entity up front, if you can: Wasn't an option, in our case... but worth mentioning
• Setup the right LLC structure, up front: Much of our pain up front could have been avoided if we had setup the right Operating Agreement for our LLC. Granted, we set it up through a low-cost online provider (you likely know them).
  • They don't allow customization of verbiage in their docs, but it was educational to re-draft an editable copy of our own Operating Agreement. Great learning experience

4.5% rate on a 30-year fixed. Was it worth it? You be the judge