To pursue or not to pursue a Quit Claim Deed

[Ikenna Okafor]

Hello guys, this has been a very informative forum for me. I need insights and advice on an issue. My spouse and I own 6 properties all in our personal names. We are thinking of transferring the properties into an LLC for asset protection. A lot of people have talked about quit claim deeds but my concern is this . - what are the chances that a quit claim deed will trigger a lender to call the mortgage balance due? I know the clause is on most contracts but is it aggressively enforced?

Has anyone been able to successfully call a lender and get them to agree to let them do a quit claim deed?

TIA

[Costin I.]

First of all, @Ikenna Okafor be careful when choosing to use a Quit Claim Deed:

A person receiving a purported real estate interest via a quitclaim deed may receive no legal right to the property whatsoever. If the person seeking to transfer real estate with a quitclaim deed has no legal interest, nothing legally is conveyed. In the absence of title insurance--which is not available for a quitclaim deed--the person receiving the quitclaim deed has no legal recourse because the deed itself states that only the interest of the grantor, if any interest exists, is conveyed.

Whether title insurance terminates by transferring real property to a revocable trust depends on the type of policy, and how “insured” is defined in the policy. You take a risk which could result in cancellation of your title insurance and complete loss of your real property without compensation in the event that a title issue regarding your real property arises.

Contact your title insurance company to determine coverage and if your policy does cover transfers , and when or how. 

Second, any transfer of title, and associated insurance changes (that's how the lender usually finds out) will trigger the DOS. Transferring to an LLC is not seen as estate planning or an inheritance event.

Most say it doesn't happen, but I see that quite probable in a climate of raising interest rates (why wouldn't the bank prefer to redeploy a loan made at 4% to current market of 6%, let's say) and/or if you are further along in your amortization (the bulk of interest is gathered in the first years of the loan...so if the bank got most of their interest and now have a reason to recall the rest of the loan, what stops them from trying). So, what worked for past years, is not a guarantee for future ones.

But there are ways to deal with a DOS call (e.g. if push comes to really hard shoves, simply deed the property back). Just know your risks - before you transfer any property discuss the issues with your attorney, your title company, your lender (as required) and your tax advisor.

A detailed resource on Due on Sale: the-truth-about-getting-around-due-on-sale-clauses

And finally, to help you (and @Mark S.) decide if this is the right move, check out this diagram I put together:

Again, I'm not a lawyer, nor CPA, so take it all with proper dose of own due diligence.

"Ignorance is bliss. Knowledge is power, but also a burden. The cure for both: action, progress, not perfection."