LLC question and a few others

[Patrick Wang]

Hi guys, I'm a first time investor and just recently bought my first home. I've scanned through the forums and couldn't find anything like my situation. I had previously set up a dedicated LLC for the sole purpose of real estate investments. During the deal, I mentioned to my bank that I would like to purchase it with my LLC. Bank said no problem, but the loan would have less favorable terms and a few other things that I frankly can't remember. At any rate, I switched to purchasing it under my name thinking I can just switch the title to the LLC at a later date. The property closed 2 months ago. I've been rehabbing it for the last 2 months and hopefully it should be on the market for rent by march. I spoke to my lawyer to transfer it to my LLC. He looked at my paperwork and noticed that the loan prohibits me transferring to he LLC, and in doing so I would breach my loan contract. Basically I would have to cough up the entire amount of the loan if breach the contract. My lawyer's other clients have faced similar situations but they still went ahead anyways. He didn't exactly condone the process but he said his clients were fine. Anyone come across similar situations? What other legal avenues do I have to transfer to the LLC? Thanks in advance!

[Mark Fedorov]

So your LLC is not you. ... you have to remember that.

Basicly you are telling the bank that YOU will pay the mortgage, but you will not have the collateral that the bank agreed to take if you default on the loan. From the bank's perspective you titling the house is an LLC's name is the same as titling the house in your sister's name.

So from that standpoint; Yes, i have heard and see other people do that and yes, I only heard of one who was caught by the bank and they had to refinance in like 30 or 60 days. Some people have gotten away with it.

I don't play that game, but if you realize you could get the loan canceled, and then the bank could go to court saying that the transfer to the LLC was not allowed due to your mortgage (they have expensive lawyers to do this, which you will probably be paying for)..roll the dice.

However, I suggest you take a step back... ask yourself WHY you started an LLC? Was it because you want to insulate yourself from potential liability? ... if so, then just buy a good umbrella insurance policy, it accomplishes the same effect, and depending on how big your house is, it may be cheaper than the extra costs you will see in your increase LLC's mortgage interest rate.