Transferring My Rental House to a Single Member LLC??

Question

With respect to the deed, I already understand that I need to Quitclaim the property to the Single Member LLC. My question is about the associated mortgage -- how do I transfer the mortgage to the LLC? Whenever I talk to the mortgage bankers they act like i'm speaking a foreign language. My understanding of the situation is that the LLC (which has zero financial history) cannot qualify for a mortgage. Similarly, I'm personally qualified for my 2nd property I'm under contract for, but my LLC cannot qualify for the mortgage. How do I get the bank to qualify my LLC for a mortgage?

My goals are: (1) limit personal liability for injuries, slip-and-falls, etc; (2) limit personal liability on the debt [so I wouldn't lose my personal residence if **** hit the fan]; and (3) grow my investment property portfolio.

State is Nebraska

Thanks in advance for your help!

My goals are:  (1) limit personal liability for injuries, slip-and-falls, etc; (2) limit personal liability on the debt [so I wouldn't lose my personal residence if shit hit the fan]; and (3) grow my investment property portfolio.

State is Nebraska

Thanks in advance for your help!

Andrew Postell · Answer

@Andrew Larson this is a very common topic of discussion here and there are a lot of different stories on what will/can happen.  I will limit my post here to how you can accomplish what you want (rather than making a suggestion if it's a good idea).  Keep researching but if you have more questions on this topic then keep asking.  Others also have these same questions.  Here's the skinny on your initial question (or at least, as skinny as I can make it):

• Mortgage in LLC name - there are loans that will absolutely lend to a LLC.  These loan types are what are commonly referred to as "portfolio" loans.  Portfolio loans are loans that come from the bank's own portfolio of money.  So each bank will have it's own portfolio loan. Meaning, that each bank will also have different rules to their lending their own money.  Since there are 15,000 banks in America, there are literally 15,000 different portfolio loans. Some banks will only offer 15 year, adjustable rate mortgages for their portfolio loans.  Some banks will require you to have a certain amount of assets before they lend to you from their portfolio loans.  Some banks will only lend in their geographical area.  And some banks won't lend to a LLC...but some will!  So if having a mortgage in an LLC is something that is important to you then you need to call around to the banks in the geographical area of the property.  Start with the smaller banks.  Community types of banks. And then move your way up to the mid-sized banks.  Don't even bother with the large banks.  Most will require $250k in assets before they even tell you that they have portfolio lending.
• Why doesn't everybody just use "Portfolio" lending? - Based on what I described above it sounds like an amazing loan, right?  But there's 2 sides to every coin.  Pros and Cons to all loan types.  A portfolio loan will carry a higher rate (at least).  It might even have some type of a balloon payment, it might be adjustable, it might be a 15 year mortgage...and I have seen all three of those features on the same portfolio loan.  Remember, this is the bank's own money.  They have a limited supply of it.  It's also more risky for them to lend it.  So they have different terms to their loans.  And the terms of one bank will be different than the terms of another.  If you want to lowest rate with the lowest payment, then that would be a "conventional" loan (a loan governed by Fannie Mae and Freddie Mac, and not the bank).  But they will require you to personally guarantee the loan and the title will be closed in your name.  You can switch title afterwards but not the mortgage.  A conventional loan would always be in your name (pros and cons to everything, right?).
• Transfering Title and the "Due on Sale" Clause - if you are using a portfolio loan there will not be any need to transfer title since they will lend to your LLC and have title in your LLC.  If you choose to go through conventional lending and want to transfer the title to the LLC afterwards you can absolutely do this.  As long as you pay on time the bank will not be enacting the "due on sale" clause.  This alone can be a 400 word topic so for the sake of time just understand that if you pay on time you will not have the note called due.

Well, I hope that wasn't too long.  Feel free to ask additional questions here in the forum if you need.  Thanks!

Natalie Kolodij · Answer

The main reason people want their rental in an LLC is to protect their personal assets against any potential liabilities that come up from the rental (ie a lawsuit)

If you also put your biggest asset that you personally own in there you're literally in the same spot you were by having the rental in your name .

Linda Weygant · Answer

This isn't entirely true.  There are many ways you can distinguish a single member LLC from your own identity.  The best way is via an entirely separate bookkeeping system and checkbook.  As long as you don't pay for personal items out of the business entity or pay for business expenses personally, it's much more difficult to pierce the corporate veil.  Co-mingling funds is by far the easiest way to pierce it.

The issue MOST people run into is that at some point in time along the way, they'll make that mistake and pay for something out of the wrong checkbook.  Do that habitually, and you've thrown all your structuring expenses out the window.  But stay disciplined and operate the business like a business and your structure will hold.

Andrew Larson · Answer

@Mindy Jensen thanks for your reply!  I do understand why the bank wants ME to be personally liable -- my question is how do I get the bank to qualify the LLC and to get the mortgage in the name of the LLC?  I agree with you on the insurance policy.

Account Closed thanks for your reply!  Could you explain further how giving 1% to another person would help me?

Account Closed · Answer

@Andrew Larson , once you have more than one member in an LLC no Court can attach orders against it - because the second member distinguishes it from your person. Otherwise if you own 100% it is entirely your own and assets in it can be seized as they belong to you entirely.

Account Closed · Answer

Who advised you to use a Single Member LLC? They provide No Asset Protection as they do not neutralize charging orders. Think again - or add an extra member - just a minor equity of 1% will do (even less if you are Scrooge)

Josh Prince · Answer

@Linda Weygant - Dee Jantsan is probably referring to the ability of a personal creditor to foreclose on the individual owner's LLC interest (an "outside" creditor) since he mentioned a charging order.  This is not really what the OP was asking about.  Most people, like the OP, are concerned about "inside " creditors, who have a claim against the LLC, and want to enforce it against the owner's personal assets.

Erik Fisk · Answer

@Linda has a good point.  Good business processes help preserve the liability protection of the entity.

More broadly, though, the single member LLC rule stated above isn't entirely the case, and the issue is more state specific.  My recollection is that the first court that held a creditor could simply take the LLC's assets was Florida.  In Iowa, we don't have a clear answer on that issue yet, so I wouldn't think a single member LLC's assets are de facto seizable.  It's a good idea to check with an attorney in your state.

James Yang · Answer

As a new investor, just get well insured for now.  Make sure the numbers are there and be conservative with them.  Don't over leverage yourself so if things go wrong, you can pull yourself out.  I recently purchased two properties as well, but will transfer them into a LLC in a couple years.  This would be easier than buying under a LLC.  As other said, if you want a loan to a LLC - you got to shop around with different lenders and you will have a higher interest rate. Good luck!