Transferring property to a LLC

[Ashok Aletty]

Hello,

I bought a condo last year and financed it under my name. I had read that it made sense to have the rental property in a LLC to minimize liability. What's the best way to accomplish this now and what are the implications for the loan? I guess I need to talk to an RE attorney. Can someone recommend a good attorney in the San Francisco bay area? Also, I am looking for a CPA recommendation as well.

Thanks for your help.

[Jenifer Levini]

Hi @Ashok Aletty, I'm a real estate attorney in the Bay Area. I help investors form LLCs, buy and sell properties, and with all of their legal issues. And I'm an investor too.

There are two answers to this question: The correct legal answer and the reality.

The correct legal answer is that once you form the LLC then you Quit Claim it from yourself to the LLC. When this is recorded the property is now owned by the LLC. According to the "Due on Sale" clause of your mortgage agreement the bank could call the loan and you would have to pay it back immediately. Then you would get another loan to the LLC at a higher interest rate, and also requiring a personal guarantee.

(By the way, the Operating Agreement of the LLC is very important in explaining how the land and mortgage are to be managed.)

The reality is that most banks do not have time to be hunting down changes of title. As long as the mortgage servicer is receiving checks every month, they seem to be happy. The checks can be coming from the account belonging to an LLC. As long as it references the mortgage number, they cash it.

If you need help forming your LLC or with any other legal issues please send me a private message and I'll send my contact info.

Warmly, Jen the lawyer