New LLC Financing issues-need guidance

[Kyle Galloway]

My partner and I have formed an LLC. We have 3 properties that we are trying to transfer into the LLC through a Quit-Claim deed transaction. Simple enough. However two of the houses have financing on them through a bank-and the loans are in our personal names. The bank does not appear willing to transfer the loans into the LLC. We are soon closing on another and while the bank says we can move the title of the property into the LLC POST closing-the loan will have to remain in my partner's name. The obvious issue-does this defeat the purpose of having an LLC in the first place? If something ever happens (God forbid) and we get sued-we would lose the investment properties and still have notes out to the bank. While we did protect our personal assets we still have the liabilities(notes) and would be screwed if we continue to scale up.

What can we do-or is this standard? Do I need to find a new bank that would write up the loans in the LLC? Is offering a personal guarantee the same as the above scenario-we'd just end up with the note if something happens? Looking for any guidance or advice.

[Jon Reed]

Your LLC will not 'protect' your family personal from defaulting on the loans associated with the properties. For example; if you are over/under on a property and your LLC goes 'bankrupt' the bank will still come after you personally for any outstanding debts associated with the LLC (because you have to sign as a guarantor on the mortgages that are in the LLC name).

An LLC is only there for liability claims... banks will still get their money from you even if the property and note are in the LLCs name.