Transferring Property to an LLC - Fannie Mae Approved Method

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Transferring Property to an LLC - Fannie Mae Approved Method

Desmond Fielding
Financial Advisor · Norfolk · Member since 2019 · 25 posts · 28 votes

I have seen a lot of posts on BP Forum regarding transferring a rental property from your personal name to an LLC and have searched the forums in the past trying to gather information. I haven't run across a post with this information, so I thought I'd share as it has helped me. I know a lot of people are afraid of the "due on sale" clause when transferring property to an LLC, but if your loan is from Fannie Mae or Freddie Mac you're able to transfer without fear of the "due on sale" clause.

In 2017, Fannie Mae updated their allowable exemptions to include transfer to an LLC. The specific language is below and I've included a link to Fannie Mae's site as well. Freddie Mac has similar language in their servicer guidebook as well. 

"Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:

A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to a limited liability company (LLC), provided that the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence)."
https://servicing-guide.fannie....

This will not work for everyone, but hopefully this information helps a few people who do have Fannie Mae or Freddie Mac loans and want to transfer them to an LLC.

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Caroline Gerardo:

Fannie and Freddie DO NOT allow the transfer ~ you have to apply and be approved to do this.

You apply to your servicer and either GSE to get approval of your SINGLE OWNER LLC and you have to disclose every little detail which takes away the reason people want to vest in LLC (to avoid personal liability). In other words your LLC becomes public information.

Changing the deed is a sale and taxes and increases are due. 


 Agreed. Also the first line: 

Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:


Unless they request release from liability. So in essence the original borrower cannot be released from liability - so there goes all the protections of the LLC... #WasteOfMoney when people do this.

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    4y

    Fannie and Freddie DO NOT allow the transfer ~ you have to apply and be approved to do this.

    You apply to your servicer and either GSE to get approval of your SINGLE OWNER LLC and you have to disclose every little detail which takes away the reason people want to vest in LLC (to avoid personal liability). In other words your LLC becomes public information.

    Changing the deed is a sale and taxes and increases are due. 

    0Reply
  • Desmond Fielding
    OP
    Financial Advisor · Norfolk · Member since 2019 · 25 posts · 28 votes
    4y

    Caroline, I appreciate your response and apologies for my delayed response. I forgot about the thread until I just saw someone upvoted it. I figured I'd share my experience for anyone else who comes across this post. 

    While it may not be the same for every state and/or servicer, in order for me to transfer my house to an LLC it only required me to submit a few simple documents: copy of the filed Certificate of Organization reflecting ownership, copy of the filed deed deeding property to LLC, documentation from local tax authority showing LLC as the owner, and hazard insurance with LLC listed as owner. 

    It was a fairly simple process. I would have to disagree with you as I don't believe I had to disclose every little detail and can't avoid personal liability. All information that was disclosed could have been found online through the local registrar or state treasury except for proof of insurance. 

    3Reply
  • Eric Christensen
    Investor · Draper, UT · Member since 2017 · 3 posts · 0 votes
    2y
    Quote from @Desmond Fielding:

    Caroline, I appreciate your response and apologies for my delayed response. I forgot about the thread until I just saw someone upvoted it. I figured I'd share my experience for anyone else who comes across this post. 

    While it may not be the same for every state and/or servicer, in order for me to transfer my house to an LLC it only required me to submit a few simple documents: copy of the filed Certificate of Organization reflecting ownership, copy of the filed deed deeding property to LLC, documentation from local tax authority showing LLC as the owner, and hazard insurance with LLC listed as owner. 

    It was a fairly simple process. I would have to disagree with you as I don't believe I had to disclose every little detail and can't avoid personal liability. All information that was disclosed could have been found online through the local registrar or state treasury except for proof of insurance. 


     I am attempting to do this now. As you noted in your original post if the loan was signed on or before June of 2016, there is no issue.  However, my loan was signed in May of 2015, one year before the date mentioned. And my loan servicer (Chase) is refusing to allow the transfer.

    Does anyone have any advice on how to proceed from here?  Am I just out of luck?  I have to keep the property in my own name until the loan is paid off?

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Caroline Gerardo:

    Fannie and Freddie DO NOT allow the transfer ~ you have to apply and be approved to do this.

    You apply to your servicer and either GSE to get approval of your SINGLE OWNER LLC and you have to disclose every little detail which takes away the reason people want to vest in LLC (to avoid personal liability). In other words your LLC becomes public information.

    Changing the deed is a sale and taxes and increases are due. 


     Agreed. Also the first line: 

    Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:


    Unless they request release from liability. So in essence the original borrower cannot be released from liability - so there goes all the protections of the LLC... #WasteOfMoney when people do this.

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    1Reply
  • Lauren Samford
    Property Manager · Member since 2023 · 20 posts · 10 votes
    2y

    All good information. I'm reading this back and forth and still left with the question - what to do to protect assets if I have a conventional loan? Do I bother with transferring to an LLC or just pay for high amount of liability insurance? I don't want to refinance out of conventional as my rate is 3%.

    1Reply
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