LLC Formation - Lawyer gave me some confusing info

[Michael M.]

I recently purchased a rental property and formed an LLC, to which I plan to transfer ownership of the home. Lawyer says this is standard operating procedure, and should be done. However, lawyer also said that technically, this is not allowed, because banks do not allow mortgages to be held in the names of LLCs.

However, lawyer also says that everyone does it, and it is important from a legal standpoint for liability, and as long as payments continue to be sent to the bank, everything is fine and the LLC provides protection to the owner.

Does this information sound accurate?  I know that most landlords that I have paid rent to in my life have been LLCs, and I can't imagine they all owned the properties with no mortgage.

Thanks!

[Bin Chen]

This is accurate. The banks don't want you to do it since they're giving you the mortgage and if you move the property to an LLC then you don't technically own the property anymore. That's where the protection comes in since if the LLC is set up and run correctly you are separate from the LLC. They have a clause in the mortgage that gives them the right to have you pay the mortgage back in full if you do this but it's widely known that banks don't enforce that clause.

As for llcs not having mortgages, that may not always be the case since some llcs have commercial financing instead of a mortgage. That's actually the legit way to do it but yeah a lot of ppl just do what your lawyer is advising