All Forum Posts by: Molly W.

Anyone concerned about this? The Housing Wire article chart shows how FHA and VA loan delinquencies are approaching really high historical levels, close to that of the housing crash.

We are still at historic lows for conventional loans. Just wanted to share. With overall cooling rents, high mortgage rates, and chaos in Washington, I'm definitely being careful about what I buy this year.

1 Vote

Quote from @John Mocker:

Molly,

One point to add. Often people ask, LLC or additional Insurance (ie. Umbrella policy), which is more important. Obviously, both have advantages. The LLC adds an additional step before the Plaintiff can go after your personal assets(they have to pierce the veil). The additional coverage means, that if they win, there is a larger pool of Insurance money to pay the claim. If there is enough coverage in place the claim ends there. If there is an LLC and there is enough coverage, what is the need to pierce the veil. So, it could be argued that you might be better off with a $2,000,000+ personal umbrella policy than an LLC and $300,000 in coverage. Both the LLC and the umbrella together would be better than either separately.

Hey John - thank you for responding and for this advice. I do have umbrella insurance. I should have mentioned that because, when I first started out, I had never heard of it. This comment is to anyone who reads this and hasn't heard of it: it is really affordable - my policy is through a commercial insurer, but the name brand insurers all offer it - and is only $400 per year. With such a low cost, I would recommend it to an investor with just one home. Like John said, even if you have an LLC you should still have an umbrella policy because you get the legal team of the insurer in your corner because they don't want to pay the person filing the lawsuit.

The advice in favor of an LLC is really compelling. For anyone who sees this post who doesn't know, deeding your property to anyone/ any LLC while having a conventional mortgage is nearly always a violation of the contract with your lender. The only exception would be if you work with lender who states in the contract that it is okay. The lender can call the loan and if you can't pay it off, then you either have to sell before the payment is due or go into foreclosure, as I understand it. Through listening to all of the BiggerPockets podscasts and articles on asset protection, I understand it is rare for this to happen, but it can. I also wonder if, due to the high interest rates and slow home sales, whether there may be more incentive for lenders to call loans with these low interest rates? This is the only reason I will not form an LLC - the loans are in my personal name and I am a single-entity LLC, so I would be violating my mortgage contracts to form a single-entity LLC that holds up more poorly to lawsuits. I am not giving advice, just want to share my thought process in case it helps any new investor who finds this thread. Hope it helps and gives some ideas!

0 Votes

Asheville, North Carolina

Quote from @Ryan Fox:

@Molly W.- Thank you for sharing. A couple things I'd like to point out:

1) Veil piercing is an extremely complicated subject that varies from state to state. Activities that would cause the protection of an LLC to be pierced may be different from state to state, so the best type of attorney to consult with is a civil litigation attorney in your state who's already litigated these issues.

2) LLCs offer varying degrees of protection depending on what state they're from and whether they're single member / multi-member.

3) An often-overlooked benefit of an LLC, or any business entity for that matter, is the ability to have the business entity file for bankruptcy. This would be a last resort for the business entity but could possibly be done without you having to file a personal bankruptcy. So you would be able to maintain your credit score while a foreclosure is delayed or eliminated altogether.

*This is not a comprehensive list of all considerations regarding creating an LLC. It is not meant as legal advice. It is for informational purposes only.

Ryan, thank you so much for this information. I had not read that one of the benfits of an LLC could be the ability to file bankruptcy for the LLC and not in a personal name, which saves the persons lendability/credit score. Really good to know for starting investors.

0 Votes

Asheville, North Carolina

Quote from @Account Closed:

Quote from @Molly W.:

Hello all - I wanted to post this because I hope it will help other beginner investors who are using conventional loans to buy rental properties.

I ran my scenario by a real estate attorney and they agreed, so I want to clarify that I am not looking for free legal advice. I just wanted to share this and I am very interested to hear if anyone has a different opinion or something to add. I am not advocating for this and would actually prefer not to be correct, since I have very low interest rates and no plans to pay off the properties.

All three of my properties are solely owned by myself and have conventional mortgages under my name.

Here are links to threads that discuss this:

https://www.biggerpockets.com/forums/52/topics/111054-am-i-protected-by-an-llc-if-the-mortgage-is-in-my-personal-name

https://www.biggerpockets.com/forums/95/topics/834545-quitclaim-to-llc-due-on-sale-clause-triggered

https://www.biggerpockets.com/forums/12/topics/128560-llc-vs-personal-name

https://www.biggerpockets.com/forums/52/topics/111054-am-i-protected-by-an-llc-if-the-mortgage-is-in-my-personal-name

Here is a newer one. The links you provide are from 4 years to 10 years ago
https://www.biggerpockets.com/forums/926/topics/1097903-all-...

The more important things to think about are "exposure". You will not get sued if you have no assets. If you decide to put a property into an LLC and the equity is under $50,000 you are very unlikely to get sued. If you have $150,000 in equity you are more likely to get sued.

You can do a "slight of hand" that helps. When you have a property and someone goes to an attorney because you said the wrong thing on youtube or such, the attorney will do "an asset search".

If they can find a lot of "assets" they are more likely to take the case. If they can't find much, they will tell the potential client that they don't have a case. Funny how that works, but it's true. An attorney likes to get paid. You have to convince him he will get paid.

Some people have one of their LLC s take out a loan from another LLC to reduce the available equity. Sometimes simply having the property in an LLC convinces the person or attorney it isn't worth pursuing and you get off the hook by default.

I am not saying LLCs are necessary or that everyone needs one, but they can be strategically and psychologically used.

Ken - thank you for taking the time to respond. That is a really valuable perspective in using an LLC to be psychologically dissuasive. My personal conflict is that transferring the deeds to an LLC is a violation of the mortgage contracts. Otherwise, I agree that an LLC could be really effective by just making a lawyer have to work harder and they may not take the case. I think this line of thinking is particularly valuable to the people who are on social media as investors and have a high profile. If anyone reading this is an investor trying to build a social media brand about how much money they make as a real estate investor, you should really get an excellent asset protection attorney.

0 Votes

Asheville, North Carolina

Quote from @Jerry W.:

@Molly W., welcome to BP. First I would NOT transfer property from yourself to an LLC using a quitclaim deed. Use a warranty deed to preserve title insurance. Next it is possible for a bank to call a note due for transferring it to an LLC. It is pretty rare, and the few times I have heard of it transferring the property back to their own name resolved it. Finally I have never heard of the veil being pierced because the mortgage was in the name of a member of the LLC not the LLC only. Maybe that has happened, but in the last 3 or 4 classes I have done on this topic not a single one even mentioned it as being a factor. In my experience it is common for members of an LLC to put the money into the LLC to start it, that includes putting in property. The most common reason to pierce the veil is fraud, one of the next most common is undercapitalization. LLC do provide protection if operated in a reasonable correct way. The protections can vary from state to state. My view may be skewed because my state gives very powerful protection to LLCs and their members.

Forgot to reply to this - Thank you Jerry for the warranty deed advice. Yes, a quit claim deed doesn't preserve title insurance. I have also been told that lawyers will zero in on quit claims immediately for LLC lawsuits because they do not benefit the buyer and the can use that to determine that the person who transferred the deed to the LLC is part of the LLC.

0 Votes

Asheville, North Carolina

Quote from @Alex L.:

As someone who also holds mortgages in my personal name but properties in my LLC, the only benefit I care about is anonymity. People who want to be nosy and search up who owns the house in public records will get my LLC, and if they search the state registrar they won't find my personal information, but rather an attorney who formed the LLC on my behalf. Someone can always go down to the county records office and pull the (potential) mortgage info to find my name if they want, but chances are that's too much work and they'll leave well enough alone. I do agree with your lawyer though, personally, but obviously different courts in different states may decide different things.

Alex - thanks so much for your reply. I completely agree that anonymity is really important. However, I've noticed that states/cities/counties differ on how much information their GIS and Register of Deeds will show on the internet. I can only speak for much of North Carolina and Georgia, but as an investor, I can go through an easily searchable deed and mortgage history on the Register of Deeds website and go onto the GIS website and easily find the owner and the deed transfer history. I've seen that some states/towns/cities don't supply this information, so you would have to do the work and physically go there. Most larger cities in the southeast have easily searchable databases, so investors don't have anonymity. I've also been able to search a state's LLC database and been able to find the name and address of the LLC owner in some cases. I have noticed the Northeast hides this information slightly more.

My issue is even if I do a proper deed transfer to the LLC, my personal name is still linked to the property and would be on these easily searchable databases. What I've also learned as an investor is that I have better tenants who take care of the home better because they are dealing with me personally - they know that if they don't pay or they damage the home, they are doing that to me, not faceless LLC. Again, just food for thought to new investors who may read this thread. I wish I had known some of this when starting, so just want to share what I've learned over the years.

0 Votes

Asheville, North Carolina

Quote from @Jerry W.:

Hey Jerry - thanks so much for your perspective. I would be a single-member LLC, versus an LLC of multiple investors, so I think that is the difference. Just want to highlight that for other beginner investors who bought everything themselves. The rules and issues are slightly different for single entity LLCs. My properties are in North Carolina and Georgia. I have read that Nevada, Wyoming, and Delaware and a few others have the best protections for single entities. North Carolina and Georgia have no special protections for single entity. Here is a useful link in case anyone who sees this thread is in my same situation:

https://www.wolterskluwer.com/en/expert-insights/what-states...

1 Vote

Asheville, North Carolina

Hello all - I wanted to post this because I hope it will help other beginner investors who are using conventional loans to buy rental properties.

All three of my properties are solely owned by myself and have conventional mortgages under my name. Due to the low interest rates of the past 10 years, they were home-run deals. With today's interest rates on commercial loans where I could put the deed in an LLC, the do not pencil as even short term rentals. My real estate attorney agreed that because the loans are in my name, there is no point in doing a quit claim deed to an LLC. The veil could easily be pierced because the loans are in my name. I am also the sole owner, so a single-entity LLC is even weaker protection.

My attorney did say that once the conventional loans are paid off, then they could be put into single entity LLCs by quit claiming the deed and have a strong foundation of protection, as long as all LLC rules were followed. I also asked about starting LLCs in states like Nevada and Wyoming, with strong LLC and single entity LLC protections. The attorney said unless the properties are in that state (mine are not), many judges would look at that as an obvious ploy to seek better protections and may still pierce the veil. They advised that it would be better to be honest and get an LLC in the state where the property is or in your state of primary residence.

The following threads were also really useful to me, but didn't exactly adress this issue. I know a lot of small-time investors are thinking about LLCs. If the loan is not in the LLCs name, it sounds like the LLC protections would be pierced, even if every other requirement was perfectly met. Curious if anyone has something to add or disagrees. I don't want to be right on this, so I'm only sharing what my attorney said.

Here are links to threads that discuss this:

https://www.biggerpockets.com/forums/52/topics/111054-am-i-protected-by-an-llc-if-the-mortgage-is-in-my-personal-name

https://www.biggerpockets.com/forums/95/topics/834545-quitclaim-to-llc-due-on-sale-clause-triggered

https://www.biggerpockets.com/forums/12/topics/128560-llc-vs-personal-name

https://www.biggerpockets.com/forums/52/topics/111054-am-i-protected-by-an-llc-if-the-mortgage-is-in-my-personal-name

4 Votes

Asheville, North Carolina

All Forum Posts by: Molly W.

Molly W. has started 2 posts and replied 8 times.

Post: Anyone Concerned About Rising Mortgage Forbearance Loans and Delinquencies?

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees

Post: Waste of time putting home in LLC due to mortgage in owner's name - Lawyer agrees