Transfering property to an LLC

[Philip Aleman]

A friend of mine was instructed by his mortgage lender to close on a property in his name to get a better rate. After closing he transferred the property to an LLC owned by himself and 2 partners. Now he is having issues. After further research he realized he could invoke the due on sale clause. The insurance policy is in his name since he closed it in his name. He wants to get the property insured properly, but doing so will trigger the due on sale. So now he is debating transferring it back to his name to avoid potential issues with the mortgage company and to be properly insured again. Is this the right move? He considered refinancing to the LLC, but with the COVID pandemic you can't get an inspector in an occupied property. Any suggestions? Is transfering the property back the right move?

[Will Fraser]

Hi @Philip Aleman, welcome to the Bigger Pockets forums!  This is a sticky situation, but not an uncommon one.  

While it is true that all of this COULD trigger the Due on Sale clause, example of that clause being enacted are few and far between (compared to the number of cases in which it could rightfully be invoked).  Now, that being said, now is not the time to dance with the devil.

Regarding the COVID-19 complications . . . you do not need a home to be inspected in order to refinance.  You will need it to be appraised and that appraiser MAY need to gain access, but you can work creatively to get around this.  For example, if you have a Matterport Virtual tour of the property, complete with the floor plan schematics and list of updates you've done and when, then the appraiser can completely do their job and complete the appraisal without entering the occupied property.  This doesn't necessarily mean they will, but it is a viable strategy that is being used in other markets.

I would recommend that your friend have an honest "all cards on the table" conversation with his lender and make a game plan.  This lender can be a great ally, or a liability to work around and there is no sense having the latter.