Transferring Title to LLC - Deed

[Jeremy VanBussum]

Hi, I am a newbie seeking legal advice regarding my first investment property. I hope someone can help who knows the ropes. Here is my situation:
I purchased my first investment property with 25% down and the rest of the purchase price was funded with a mortgage in my name. I also took title and possession in my name. As I understand, to protect my equity, it is best to place this property into its own LLC. With that said, I want to transfer title into the name of an LLC (which is okay with my lender as long as it is a single member). I plan to transfer title into the LLC, but I am not sure what the best type of deed is to use. Any thoughts? I've also been advised to update the landlord insurance policy to include the name of the LLC and also to add an addendum to the lease I have in place to make the lease between the LLC and tenant. The only thing that will be left in my name is the mortgage. Does anyone see this as an issue and is there anything else that I am missing? I am racking my brain trying to make sure I have myself as protected as possible. Oh, and yes, I am working on getting an umbrella policy to further protect my personal assets.
Thanks in advance for anyone who offers advice.

[Joe C.]

Congrats on your first deal Jeremy VanBussum.

[Account Closed]

Jeremy VanBussum, Warranty Deed will save you headaches later on.

[Wayne Brooks]

Putting it in an LLC won't protect the equity in that property, only any additional personal assets You may personally have. Also, a single member LLC is sort of easy to penetrate anyway. If it matters, transferring into the LLC will probably void your title insurance too. I personally think the "must own it in it's own LLC mantra" is a little over blown. That's what insurance is for.

[Jeremy VanBussum]

Wayne Brooks - I am already feeling the pain of the separate LLC (all the hoops you have to jump through) but it is the advice that most people are giving me. It does seem costly ($190 per year for each in my state) and with my limited knowledge, I am not sure how much protection it really provides. All I understand is that in order for someone to penetrate, they will need to prove that I am guilty of neglect or tort. I am not sure how hard that is to prove. I have no experience.

[Account Closed]

I have a SMLLC that my contracts and monies go through; however, my mortgage company won't allow me to transfer the title without the due on sale clause being enacted. I agree with Wayne, holding a single residence in its own LLC is a little overblown... Just get a good umbrella policy... My policy is less than $190 a year and provides me with $2.5 million in protection. For my LLC purposes, I make it nearly impossible for the corporate veil to be pierced, as everything is paid in and out of the LLC as it deals with the residence, this is where a good accountant comes into play. This just adds a layer of protection for me as a landlord. It was the idea of my attorney (who didn't charge me for the help) to do it this way, as many cases in Texas are between the landlord/property manager and the tenant. Since all of the management is going through an LLC, the tenant can't go after any of my personal holdings, which includes the residence itself. I am not protected under the LLC for personal liability of the property, but that is where having a savvy attorney comes into play. Good luck to you!

[Tim Norris]

Consider the method by which you structure the ownership of assets as your "castle walls and moat" around what you want to protect. Think of insurance as the "archer in the watchtower"...two different mechanisms that function together.

[Ned Carey]

To answer our deed question I would say a special warranty deed. these are most common today in most areas, general warranty deeds are less common. In this situation a quit claim deed could also be OK but no advantage and possibly a disadvantage when you want to sell down the road. A quit claim deed can be a red flag for title insurance.

Good luck- ned

[Bill Gulley]

A savvy attorney who is not up on real estate agency law but simply business can get you in trouble. Your LLC is a separate entity as a different person. That entity, in order to do property management for RE that it does not own in title may well require a license with your RE Commission, so you need to check on that issue.

Next, your LLC should be formed more for business purposes, like taxes and related expenses that may be taken than protection from liability issues. Consider too that in some instances a manager or executive of a business can be held personally liable aside from the entity. Single member LLCs are very difficult to insulate yourself from saying your alter ego is responsible and not you. If you fail to manage and maintain the LLC properly a good attorney lay down a float bridge over your mote and shoot your archers with a 50 cal. charging in like Grant went through Richmond. :) The tactic is to disqualify the LLC due to lack of attention, unauthorized actions or poor management and then hit you personally and since there is more to good management than most realize, it's easy to do. A multiple member LLC is easier to insulate yourself as it is a partnership, but you still have management issues and the opposing forces will go after that as well and seek the guy with deep pockets.

Insurance is the best solution if you failed in your duties.

The very best solution is to act legally and prudently, taking care of your properties to eliminate risks, and for those you can't eliminate cover yourself with insurance.

Form an LLC for its business advantages more than as a shield from liability.

As to the deed, use a Special Warranty Deed if there is something about the warranty you are excepting out, like an underlying mortgage, otherwise use a Warranty Deed for the chain of title. A Quit Claim Deed should only be used with deeds in lieu of foreclosure or between family members, it's is not a good way to convey title in investing matters between unrelated parties or from a business entity, there are too many title issues that can arise.

Best thing to do before anyone uses any deed is to call your title company and give them the situation and ask if they will insure over the deed and if that is the proper use. They may not say you're doing it right (providing legal advice) but they can say if they would insure over the transaction. :)

[Jeremy VanBussum]

Bill Gulley - Thanks Bill. Great advice and thanks for the detailed response. I currently use a property manager who is already licensed, so I think I am in the clear there. I hear so many different perspectives that it hard to decide what is best.

[Wayne Brooks]

Jeremy VanBussum just remember, your original post said it was to "protect my equity", which an LLC won't do for this property.

[Bill Gulley]

You're a CPA I see, you should do better than most at this matter, but now you got my nickel's worth. :)

[Jeremy VanBussum]

Wayne Brooks - I agree, the property itself would not be protected. I am mostly looking for a way to remain independent from the property itself and have one property independent from another. Being so I have a property manager, do you feel this would help?

[Account Closed]

Originally posted by @Jeremy VanBussum:

Wayne Brooks - I agree, the property itself would not be protected. I am mostly looking for a way to remain independent from the property itself and have one property independent from another. Being so I have a property manager, do you feel this would help?

I'd really like to see the answer to this question!

[Tyler Kaye]

Originally posted by @Account Closed:

Originally posted by @Jeremy VanBussum:

Wayne Brooks - I agree, the property itself would not be protected. I am mostly looking for a way to remain independent from the property itself and have one property independent from another. Being so I have a property manager, do you feel this would help?

I'd really like to see the answer to this question!

I as well.  Any conclusion to this matter?