Indianapolis - How can I change the title from my name to my LLC when the loan is in my name?

[Rodney Kuhl]

I invest in Indianapolis, and I am closing on 2 more rentals in the next couple of weeks. I have been working with a great lender and I have been able to lock in low 30-year rates, which is definitely a great thing as I see rates climbing over the next few years. However, they only lend to individuals, so the loans are in my personal name. If I wanted to switch the title over to my LLC to provide more protection to myself, what effect would this have on the loan? I'm guessing the lender could act upon the due on sale clause, so is there a way to avoid that risk?

[Jynell Berkshire]

Rodney,

You will not be able to deed the property over to your LLC until after the loan closing. The lender will not permit it, as you, individually, are personally guaranteeing the property and will be personally liable. It is extremely difficult to find a lender that will lend directly to a LLC because, as others have mentioned, the lender wants you to be personally liable should there be a default so that they can attempt to seize and lien your personal assets.

You should most definitely read the mortgage note prior to any property transfer. The lender traditionally prohibits this and will accelerate the note in the event they ever find out. This most often happens when you transfer title with a quitclaim deed and there is a property loss, i.e. fire, water damage, etc. The same is true with insurance. You need to make sure that any insurance carried on the property is in the name of the proper insured. Otherwise, insurance companies usually object to any claim being filed when you, as the individual, hold the mortgage note but have deeded it over to a corporate entity umbrella structure.

Remember, you should not deed the property with a "warranty deed" with a mortgage note/lender attached. You can't warrant that the property is free and clear of any encumbrances, unless the lender consents to it. Which of course, you don't want to raise that flag with them and accelerate any loan terms. This is why quitclaim deeds are usually the proper legal form.

At the end of the day, you need to make sure you know what you are doing or you may pierce the veil of your LLC or any other corporate structure and open yourself up to personal liability wherein lenders can attach to your personal assets. In the State of Indiana, this is somewhat difficult for lenders to do. However, I have litigated these cases on number of occasions for real estate investors. Believe me, it happens more than what you would think regardless of price point of the property.