Remove property from LLC then put back in

[Joyce Williams]

Has anyone every removed a property from an LLC to get a conventional loan against the property and then put it back in the LLC after the closing?

[David M.]

@Joyce Williams

This is part of the nearly daily discussion about the need for a LLC and "paying for it." I assume you are asking about this to obtain residential financing which is cheaper and has better terms than commercial financing. While many other have done it, I've always questioned its validity to maintain the LLC's corporate veil. While no attorney has weighed in on this on BP that I have seen, I assume because it varies by State and its a sticky situation determine that they'd want to be paid to consult on.

If you do what you are asking, then in the end you will have Title held by the LLC and the mortgage in your name. So, which entity pays the mortgage? Its automatic co-mingling. The best solution we've come up with is have an attorney generate something between yourself and the LLC so that the LLC informally assumes the loan, or perhaps better described as a "subject to" purchase.

Meanwhile, when you transfer Title you should look into your Title Insurance Policy and your homeowners/landlord insurance Policy.  The former may no longer apply.  The latter may need to update the mortgage clause which means they will have to inform the loan servicer that Title changed hands.  That might trigger the Due on Sales clause.  There are people I've met who have been doing this for decades who has never seen this and some who have seen this.

Also, if you keep flip-flopping Title, I think that further shows that you are using the LLC as your alter-ego thus piercing your corporate veil again in my layman's opinion. I know there is the argument that many other small businesses of all kinds mix personal credit / loans with their businesses. Again in my layman's opinion, that is still for business lending. What you are asking is specifically trying to achieve the best of both worlds, that is having the cheaper, residential conforming loans while having the asset protection of a legal entity. However, to have the asset protection you need to have everything (which really should include the mortgage which has been commented previously in BP by at least one professional if I recall correctly) "inside" the LLC, and keep it there. To maintain the corporate veil, the entity must stand on its own as I've been counseled. Using your "personal" name as a resource doesn't really make it stand on its own.

As for Land Trust, its basically a Trust... While some say it provides asset protection, my understanding is that is really doesn't provide much asset protection. Its really for anonymity. I THINK the setup is to have the Trust inside the LLC (I think you take Title by the LLC then put it into the Trust, or maybe the other way around). The anonymity comes into play because the Trust documents don't actually have to be filed. So, when somebody is trying to track down ownership, they will run into a dead end since they won't be able to figure out who owns the Trust. This is something else that has to be done correctly so that you don't leave any clues as to who is the Trustee/owner.

So, to answer your question in short, yes many people have done it. There are many posts on BP that attest to taking that action. However, everything that I have pieced together and been counseled shows that it may or probably has pierced your corporate veil thus making your LLC useless and you may not have even realized it. The proof really comes down to if the manner in which you have operated your LLC withstands a lawsuit. That has never been posted.

Good luck.