LLC Deed Transfer - Due at Sale Concern

[Nick Bourgeois]

Hey everyone! Hope y'all are getting geared up for the holiday weekend.

My partner and I continue to come to the same hurdle... deed transfer to a series LLC. We've spoken to numerous lenders across DFW, and every single one will give us a different response. We intend to do a cash-out refi after the 6-12 month seasoning period, which will force us into a conventional mortgage. Have any of you successfully been able to transfer the deed to their LLC after refinance or purchase? From all the people we've spoken to, we've never heard of a lender invoking the "due on sale" clause as long as the lender gets their money, but once it's on the secondary market, there's just too much separation. It's just one of those risks that we don't like having hanging over our head. So in summation...

1) Have any of you out there transferred the deed to your LLC? Any issues?

2) What is the deed transfer process? What channels does it go through? Does the lender receive notification, or is it something they have to stumble across? 

We don't want to do anything illegal, just looking for advice!

[Jon Pitcher]

@Nick Bourgeois 

The question here is whether transferring the property is worth the risk and hassle - usually it isn't, in my opinion.

If you manage the property yourself, the LLC isn't providing much liability protection. An injured tenant could just sue you personally for negligence in your management of the property. In Texas, an LLC does have charging order protection, so the LLC could protect your equity in the property from unrelated claims/judgments against you. But if you recently borrowed the money, you probably don't have all that much equity to protect.

The deed transfer itself is simple. All you need to do is file a quitclaim deed in the county where the property is located. But you also need to change your insurance beneficiary, and start paying the mortgage payments from your LLC. The lender does not receive notice directly of the transfer, but it does receive notice of the change of insurance beneficiary.

If you don't want the lender to find out at all, you can use a trust to take advantage of a loophole under federal law. Essentially, you transfer the property to a living trust - this looks to the bank like an estate planning transfer, which they see all the time and does not trigger the due on sale clause. But then you change the beneficiary of the trust to be your LLC. The downside of this strategy is it isn't necessarily bullet-proof, it will cost you some legal fees, and is illegal in at least one state (Michigan).

I have heard of at least one investor having his loan called after transferring to an LLC, although the bank did give him 30 days to transfer it back...

https://www.biggerpockets.com/forums/311/topics/18...