LLC

[Casey Fisher]

So I own a rental property that is under my name (deed, mortgage, and insurance). I would like to deed the property to an LLC that I will create. After discussing with a few experts (my CPA, my mortgage rep, and an attorney) and asking around, it seems there is a catch 22. Banks don't like lending to LLC's, especially new ones. As an investor you want to protect yourself, but in order to get a loan the LLC has to show some "experience" in paying down debt, which this LLC will not have (even though I own the LLC and have been managing the property on my own for 11 years). I am risking a lawsuit and my personal assets are at risk because I can't get a mortgage through an LLC that allows me to make money on my property. However, where I am now, trying to deed the property to my LLC my insurance has to be changed to the LLC as well, which raises a red flag with the mortgage company because they want me to refi at a higher rate because the LLC doesn't have the history. Any suggestions here? Anyone have the same experience? What should I do?

[Luke Stickney]

If you are currently risking a lawsuit and you transfer to an LLC or Trust, you could still be sued for fraudulent transfer and be forced to transfer the property back to your name if you lose the lawsuit. If they sue you in federal court, I hope you have very, very, very deep pockets.

If the threat of a lawsuit is not imminent, then I would get all properties out of your name anyway, and as fast as you can. I moved all my properties out of my name several years ago. I did this by hiring an asset protection and tax attorney to transfer all my assets to individual LLCs which where managed by a trust that I set up. I hired an attorney because I didn't want any Tax implications. 

One thing you want to be aware of with a traditional mortgage is that you could trigger a *due upon sale* clause and require an immediate pay off of the loan. However, a good attorney will handle this. My guy wrote letters to the bank notifying them of what was happening and told them to contact him with questions. One of my commercial loans which is through a small bank ended up transferring my loan to a high risk department because of the transfer. At the end of the day, the loan has always preformed on a very expensive commercial property and so really, what are they going to do. Foreclose on a preforming loan? That's a very expensive option to exercise on a preforming loan.

Since I have restructured my assets, I have put all new property in individual LLCs. Because I am starting new LLCs for each property, (which are all owned by a parent LLC company whom which the managing member is a Trust), i never have credit for the new entity. I simply secure the loan myself and let the bank know that the property will be held in a LLC. I have not had any problems to date.

I will say that this type of structure does cause a lot of extra paperwork when buying out of the country, but thats a different topic.

The bottom line is this, people are greedy and sue happy. If they find out how much property you own, they will try and take it from you, period. The topic of asset protection can be debated for hours, but if you have a significant amount of assets in your name, its just a matter of time before you are sued. And most likely it won't be your fault, they are just looking for a settlement.