Rental Property Investor · Bellevue, WA · Member since 2017 · 26 posts · 4 votes
TL;DR -- how transfer 50% ownership of my rental properties to my brother? The properties are financed by me and are Fannie May loans.
I'm trying to figure out how I can have me and my brother on the title as 50% owners (tenants in common) for my rental properties that are financed.
I have seen a lot of conflicting information from my research so far.
My loans (4 mortgages on 4 rental properties) are all Fannie May loans.
From my research, it suggests that until 2016, the name on the title of a property backed by a Fannie May loan must be in the name of the person on the loan, and no one else. In 2016, the guidelines appear to have been updated to allow ownership of an LLC, but only if it is a sole proprietorship (source).
I have also heard that changing the title can have implications on insurance policies.
Bonus question: I also have a registered LLC, and would actually prefer to own the properties via the LLC, with my brother. In this case, I would add my brother as a 50% stakeholder in the LLC. (I prefer LLC for the additional protection against litigation/liability).
Changing the name on the title can trigger the due on sale clause so be careful there. The due on sale clause gives the mortgage holder the right to call the note due - but they usually don't if it continues to be paid. You could always coordinate that with them, but if they say no then you have an issue because they may be more likely to use that clause if you do it anyway.
If you did change it to your LLC name, I would register the LLC as a two member LLC. Keep in mind that will have tax implications and you will pay more at tax time for having a membership LLC rather than sole member pass through entity LLC. But definitely be aware of the risks of changing the title without the bank knowing, I think it is always best to be transparent.
Another simple deed change vehicle that will not trigger a due on sale, tax consequence or insurance problems (check w your carrier): put the title into a trust. Designate a trustee and you and your brother can be 50/50 beneficiaries.
Do your research and get your documentation straight, it is easy-peasy. Pls check w your attorney or find an attorney that is conversant in living revocable trusts.