Titling your properties in an LLC

[Wesley W.]

Hi folks,

I've asked this question obtusely before, but I'm still not sure how to make this work.

I just finished reading Brandon Turner's blog regarding "I'm not the owner." In Brandon's article he mentions holding his properties in an LLC.

When I first started setting myself up for a RE portfolio, my wife and I - on the advice of our CPA - created an LLC.

Now, as we search for lenders to finance our first deal (duplexes, to start) - they universally tell us that we CANNOT title the property with the LLC; it must be in our own personal names despite "personally guaranteeing" the loan.

To me, this defeats the whole purpose of forming the LLC to begin with. I spoke with a mortgage broker that told me that basically I could transfer the title into the LLC after closing, but I would have to change it back in order to sell or refinance. Each time, generating additional attorney fees and closing costs.

The broker also mentioned that titling in an LLC about this creating a "commercial" closing - which my attorney says is many magnitudes more expensive - but she had to get back to me on that.

Here's an excerpt from an email from my attorney:

Mortgage lenders will allow a LLC to borrow and take title in its corporate name. It just won't be at the rate that you might get as an individual. Aside from the two (2) transactions that you are envisioning, if this is deemed a "commercial" closing", the legal fees for the same are significantly more expensive.

I'm also worried about the specter of the "due on sale clause" rearing its ugly head as interest rates climb and lenders sift through their portfolios they might see that the title was transferred, then compel us to take action.

I've heard from other investors (both on BP and locally in Upstate NY) that just keep title in their own name and just buy "Cadillac" insurance policies for each property. Again, this makes the expense of forming an LLC silly.

There must be a way. Am I talking to the wrong lenders/attornies/investors?

Thanks for your help!

[Bill Gulley]

Chris is on the right track, IMO, after the link, to the link to the link, LOL

I have done many transfers, mostly in installment sales, with notice and implied acceptance working well for me, this is the same issue, the due on sale. In one of the links, Chris suggested making the deed in the closing as part of the attorney's closing package, good idea, it's the reply from the attorney, that it is done for the protection of the client.....

That may work, but it really doesn't matter what protects the client, as it should continue to say how it protects the client. The point to make is that it is part of the client's estate planning to protect the client and thier estate.

Transfers that are accomplished for estate planning purposes are exempt by law from the lender's right to accelerate the loan to maturity upon any transfer (that's almost a quote, I think).

Keep in mind too, and in your attorney's mind, the a Trust may be a member of an LLC or an LLC can hold a Trust. RE attorneys are usually not estate planners bring that to thier attention. Good luck :)