Transferring Property into LLC and Risk for Loan Being Called

[Israel Gross]

Hi,

I currently own a 4 unit building and lived in one of the units until April of 2018. In November of 2016, I refinanced into a fixed 30 year loan (at a fantastic rate), with the requirement that the property would be owner-occupied for at least one year (which I met). My attorney has strongly advised that I transfer this property into a LLC to minimize my liability. However, he stated that technically, the mortgage company can call the loan once the property is transferred. He shared that in his 40+ years of experience none of his clients have had this happened to them, but that loan companies can now monitor deed transfers easier than ever.

I was wondering if anyone has been in a similar situation and had their loan called after such a transfer. I would hate to lose my current rate or be forced to sell the property.  I would also be grateful for any advice that people have on the subject. 

Thank you in advance,

Israel

[Scott D Burrows]

@Israel Gross

The method that you referred to is the most common method among people here on BP, at least what I have seen. 

However, I'm not a lender. 

A good lender for reference, who is active on here, would be either @Diana Muresan , @Chris Mason or at @Andrew Postell .

I'm sure one of them will be able to validate whether any concern is needed with the strategy you mentioned. 

My guess is that you are worrying over nothing :)

Good Luck,

Scott 

[Scott D Burrows]

@Israel Gross

The method that you referred to is the most common method among people here on BP, at least what I have seen. 

However, I'm not a lender. 

A good lender for reference, who is active on here, would be either @Diana Muresan , @Chris Mason or at @Andrew Postell .

I'm sure one of them will be able to validate whether any concern is needed with the strategy you mentioned. 

My guess is that you are worrying over nothing :)

Good Luck,

Scott 

[Israel Gross]

Scott, thank you for the info, much appreciated.

[Chris Mason]

Share this thread with your lawyer: https://www.biggerpockets.com/forums/49/topics/610...

[Scott Smith]

Another method to avoid those issues is outlined in this article - it is worth a read.

[Israel Gross]

Thank you Scott. This seems like a very simple and straightforward solution. I am going to forward this to my attorney. 

Much appreciated,

Israel

[Mike S.]

Do a warranty deed of the property to a land trust where you are the initial beneficiary, then later assign the beneficial interest of the land trust to your LLC. Don't forget to change also the name insured to your land trust. The first transfer will protect you against a due on sale clause (Garn St Germain Act). The assignment to the LLC being a private non recorded document, no one will know about it.

[Andrew Postell]

@Israel Gross you have some good responses and the short answer here is that a bank will not call the note due as long as you pay on time.  Just keep paying that mortgage.

[Pat G.]

I have been in the RE business for over 25 years and have transferred 100s of SFR -Single Family Residential into a trust or LLC and never have had the bank call the note due. One thing to watch out for is that now the City Assessor will change that property from Owner Occupied to a Rental which in most states will affect your taxes, and they are not going to go down!! Here in Michigan taking it out of Owner occupied status doubles that taxes. So be where and plan for it. You lawyer is correct on liability.