All Forum Posts by: Danielle DeCormis

@Danielle DeCormis My head is spinning after reading your post. No, leasing the property to an LLC does not shed liability. Your proposed strategy may make litigation after a claim arises more complicated and costly for you to defend. Umbrella coverage may be good for some, based on the facts not entirely sure its necessary in your scenario. It seems the question you're trying to get an answer on is how to avoid personal liability? It's quite simple. Do not operate your business negligently and certainly not with gross negligence. Do you know how this is accomplished? Either be active in management or hire a reputable PM who can satisfy this role. Eliminate any premises liability issues promptly. Hire reputable licensed and insured vendors. Carry appropriate types of insurance. Sign contracts requiring vendors to list you as additional insured with correctly worded indemnification language. These are the tools at your disposal that will help you avoid liability. Best of luck.

You have three separate categories here: lending, legal, and tax.

For the lending side, the lender has a clause in the loan documents in 99.9% of loans that allows them to "call" the loan if their is a change in ownership of the property. They generally do not do this because either they are not aware of the changes or the loan is seasoned and performing so they are deliberately turning a blind eye. In the handful of cases that I'm aware of, the lenders found out when changes were made to the insurance policies for the properties (the lenders will get notifications by letter of any changes to insurance policies where they have an interest). I know of at least two occurrences where the investors had to move the properties back to personal ownership under the lender's threat of acceleration of the loan.

For the legal and tax side, I'm neither an attorney nor tax professional. My very limited understanding is that the mortgage being in your individual name and you operating the property through a single-member LLC makes piercing the corporate veil fairly easy and that insurance coverage is typically a better protection plan. I could be wrong here, though.

Lol yes, so many different opinions right! I don't want to give my opinion to you here based on my experience with clients but I would definitely ask your tax professional on their opinion because you might be surprised by their answer. To clear up things though if you have an LLC just for rental properties you won't get any tax benefits for having an LLC other than an additional expense.

John did a great job answering this! The due on sale clause will be the biggest worry, even though it's uncommon for banks to enforce it, they have the opportunity to at any time. Typically they give you 30ish days to get the funds and in the time you might be able to find a new lender but every bank is different.

Yes you'll still be able to claim the tax benefits as long as you qualify even if the property is in your LLC. Know your tax situation first though because real estate may or may not benefit your tax situation!

You may have to pay off the whole mortgage if the due on sale clause is exercised.

No need to move in an LLC if it has a big mortgage and insurance.

An LLC can also give you a false sense of security that can easily be pierced with a decent attorney.

Just have correct insurance and properly maintain your property.