My CPA says put the rental under the LLC, lender says in my name?

Question

My lender says I can transfer the title to the LLC after the purchase. Is this complicated and/or costly?

Weston Couch · Answer

@David Harper We handle this situation frequently. A transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property, your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.

And feel free to connect with me if you'd like to know more!

Wayne Brooks · Answer

@Weston Couch Not exactly....

@David Harper If you buy it in the LLC, you eliminate 30 year conventional (Fannie/Freddie) financing and will have to with a commercial or a portfolio loan, both with s balloon in 5-7 years, and a higher rate.

This is why the lender is saying buy personally, the transfer to an LLC .

NOTE: as of a year or two ago, Fannie now Specigicslly Allows transfer of the title to s single member LLC, owned by the same individual, at least for loans originated after then, with NO due on sale issues.

Eamonn McElroy · Answer

@Wayne Brooks hit the nail on the head.

Your lender is trying to help you.

Fannie silently changed their policy recently to allow transfers into an LLC without violating the due on sale clause if: (1) the mortgage was originated or purchased by Fannie Mae on or after 06/01/2016, (2) the LLC is majority owned by the transferor, and (3) the transfer doesn't violate the security agreement.

https://www.fanniemae.com/content/guide/servicing/d1/4.1/02.html

Wayne Brooks · Answer

@Weston Couch Not exactly....

@David Harper If you buy it in the LLC, you eliminate 30 year conventional (Fannie/Freddie) financing and will have to with a commercial or a portfolio loan, both with s balloon in 5-7 years, and a higher rate.

This is why the lender is saying buy personally, the transfer to an LLC .

NOTE: as of a year or two ago, Fannie now Specigicslly Allows transfer of the title to s single member LLC, owned by the same individual, at least for loans originated after then, with NO due on sale issues.

Wes S. · Answer

@David Harper this question comes up now and then, usually related to the “Due on Sale” clause.  Lenders allegedly are nervous about putting LLCs as the borrower, or as a policy don’t.  But if you transfer the property to an LLC after sale, the lender can legally call the loan based on the “Due on Sale” clause, because it would look like a transfer.

Brandon said in a podcast that this happened to him once, however he transferred  it back to his name and the lender was ok with it.  That’s why your CPA is advocating for you to do it as an LLC from day one. There’s no easy answer, but there are discussions about this if you search for that clause in the forums.

Greg Downey · Answer

@Weston Couch, I'll push back on trusts on regards to how they effect lending.  I certainly understand why a trust makes sense from a legal standpoint, BUT those same reasons make lending to a trust (or an LLC owned by a trust or an LLC owned by an LLC owned by a trust etc) virtually impossible. I have seen so many great deals fail to receive the financing that they should get based on cute legal tricks that totally gum up the financing. That is a bit of a rant and not directly pointed at you Weston, but I've seen it paralyze so many borrowers.

Weston Couch · Answer

@Wayne Brooks @David Harper I think that's great information from Wayne, but we typically structure our clients properties into LLC's that are not owned directly by the client so there's no public record that shows the client controls that property (This makes it harder for an attorney to bring a lawsuit against them). That's why I mentioned transferring the property into a land trust under an LLC to avoid the due on sale concerns.

Steve Hall · Answer

@David Harper

Find another lender...

David Harper · Answer

@Wes S. Thank you for the direction!  This would be my first rental under a new LLC with no credit history. I asked to put the title in LLC name and finance in my name which has credit worthiness and the lender pushed back. I have an S Corp, but setting up this RE venture under new LLC.

My CPA says put the rental under the LLC, lender says in my name?

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