Investor · West Palm Beach, FL · Member since 2015 · 15 posts · 1 vote
My wife and I formed an LLC to use for our new rental business. We just purchased our first rental a couple months ago and are just about done with all the renovations. So I called up the bank to see about doing a quit claim deed to put the house in the LLC's name and they said that we are not allowed to do that.
So now what? What is the purpose of my LLC now? I want the liability protection and the ability for tax write offs. Also we plan on purchasing more rental properties but this makes me feel uneasy about it all now...
The loan you have doesn't qualify if the owner is an llc. Secondly what type of tax write offs do you believe is available by owning in an llc compared to not?
lol i know.... But i spoke with a real estate attorney and he suggested that i should ask them since if the bank finds out they will require payment in full for the balance of the mortgage. I really don't want to worry about that.
lol i know.... But i spoke with a real estate attorney and he suggested that i should ask them since if the bank finds out they will require payment in full for the balance of the mortgage. I really don't want to worry about that.
If you ask around you might find out that statistically the chances of that actually happening are extremely slim ;) . But if you're not comfortable doing it then don't do it.
The LLC will not change your tax situation- it would be a pass through entity for tax purposes anyway. And the liability protection of a basic LLC is, I believe, often overstated. You would likely be better served by an umbrella liability policy.
You willstill be able to deduct all your expenses on your sched E. The limitation is for the amount of losses you can use to offset your other income. I hope you didn't buy in order to create a loss!
I have heard that some banks will give you a loan on the LLC as long as you are willing to personally Guarantee the loan. You might want to tackle it from that angle.
Check out bigger pockets podcast #109, they had attorney Scott Smith on and he touched base on this topic somewhat. Excellent podcast. If you don't mind keep us posted,I'm interested if you find some sort of loophole in order to start an LLC.
So if banks don't typically allow this transfer, how do people make it happen?
yea i second that, i'd like to know how how a mortgaged property can can be transfered without their permission to an LLC
The process of transferring ownership of a property doesn't require any involvement from the bank. They don't have to give permission or sign any paperwork for it to be completed.
Think of it like a parent of an 18 year old who won't "allow" their child to get a tattoo. In reality they cannot stop it from happening but if it does happen there can be consequences for doing it when it's against their rules. Alot of people who have done it will you that there is a very very very slim chance that the bank will ask the loan be paid immediately and even on the very rare occasion that a bank has they backed off because they were still being paid on time.
Isn't a mortgage secured by the home one borrowed against in order to be disbursed the funds to purchase?
Wouldn't transferring the home one borrowed against to another person/entity be barred by that mortgage being a lien/deed of trust until it has been paid off in full?
Isn't a mortgage secured by the home one borrowed against in order to be disbursed the funds to purchase?
Wouldn't transferring the home one borrowed against to another person/entity be barred by that mortgage being a lien/deed of trust until it has been paid off in full?
No, having a lien on a property will not stop it from being transferred to another entity. That's the whole reason people get title searches done before purchasing a property because it's completely possible to purchase a home with a lien on it.
and that in turn is the whole reason why mortgages (deeds of trust) employ due-on-transfer acceleration clauses to prevent the collateral (property) the mortgage loan was secured against. federal law makes these clauses enforceable nationwide.
so, how do lenders tend to 'find out' a mortgaged property was transferred before payoff without assignment (if was permitted by lender contract) of the mortgage to the new title holder?
and is litigation required for acceleration, or does the very act of transfer of title make mortgage acceleration enforceable?
@Brian Louderback You are more likely to be struck by lightning than you are to have the bank request payment in full upon moving the property into you LLC. The bank just wants to get paid. They will not exercise the due on sale clause if you keep making payments.
and that in turn is the whole reason why mortgages (deeds of trust) employ due-on-transfer acceleration clauses to prevent the collateral (property) the mortgage loan was secured against. federal law makes these clauses enforceable nationwide.
so, how do lenders tend to 'find out' a mortgaged property was transferred before payoff without assignment (if was permitted by lender contract) of the mortgage to the new title holder?
and is litigation required for acceleration, or does the very act of transfer of title make mortgage acceleration enforceable?
Again the due-on-sale clause does not "prevent" anything. It's just part of an agreement that can only become enforceable AFTER a property has been transferred. Like you said the bank finds out after it's been done but most times will not attempt to enforce the due on sale as long as they're getting paid.
@Brian Louderback You are more likely to be struck by lightning than you are to have the bank request payment in full upon moving the property into you LLC. The bank just wants to get paid. They will not exercise the due on sale clause if you keep making payments.
This does seem to be the conventional wisdom on Bigger Pockets. But I wonder about this in the long term. What if interest rates rise precipitously? Is it possible that lenders may start looking for a way to free up funds that are tied up in low-interest loans such as the ones that are being issued now? If that were to be the case exercising the Due on Sale clause might become an attractive option.
So, I have all my properties in LLC even though I personally hold to mortgages. I use grand deeds, if I remember what my lawyer said, a quit claim doesn't give me as many protections from past title issues & the title insurance doesn't continue.
I have also talked with a friend of mine, who is also my mortgage guy, he pretty much said that as long as I keep paying on time, they don't really care who holds title, they hold first position mortgage, and should it go into foreclosure, then they get the property regardless of its in my name or my LLC's name.
I use the LLC for a few things: By operating the LLC I have gotten credit directly for the business with out my name on it. It is easier to track ownership between me and my business partner. We have greater liability protection should things get really bad, and as insurance goes, they just list my LLC as an additional insured on each property.
I agree with @Kyle Smith don't tell the bank. Yes, it could trigger the due on sale clause, but if you pay on time you should be fine, especially since you own the entity that owns the property.