Are you unknowingly creating mortgage fraud? Insurance v LLC

[Nick Romano]

Hey Guys! I'm closing on my first Multi Family in Mass and I'm told I can't close in an LLC because the banks will not give financing to an LLC (even if I co-sign or guarantee the loan). I have had some people tell me to close in my personal name as an individual then convert the deed (via quick claim, etc) to the LLC after the loan is established. The issue is every mortgage company I've spoken with says this would be fraud or in violation of the mortgage terms and could result in pulling the loan and putting the house into foreclosure.

I spoke with my CPA and he said I will want it in an LLC and he does these conversions all the time. I have also seen multiple people in this forum doing this same process (transferring after the loan closes via conventional financing from personal to LLC).

So my questions is: Are you unknowingly creating mortgage fraud by closing the loan as an individual then putting the deed into an LLC? Is it in unwritten rule that this just what investors do to get conventional loans into LLC's?

Is there some clause that I should put in the loan contract before signing with the lender??

Let me know what you guys think.  Interested to get some opinions here.

Thanks!

[Edward B.]

It is not mortgage fraud but you are more than likely violating the terms of your contract, i.e. the Due on Sale clause. However, it is up to the lender to exercise their right under that clause to accelerate the loan. Many of them do not. It is an important distinction, though. Fraud would be obtaining the loan under false pretenses. You are not doing that. This is a contract law issue, not a criminal one. The clause is in there for a reason and the remedy is clearly outlined in the contract. It gives them the right, not the obligation, to accelerate the loan. And as mentioned, many choose to just let it go...at least for now. They can exercise that right at any time.