All Forum Posts by: Mordy Chaimovitz

Sure. 

My rep at chase is going to set up a business account with the tax ID of the new llc. Will that cover it?

Ok Here's the latest. My attorney told me to speak to my lender. 

my lender said that fannie recently changed the rules as we discussed here on the forum. The rule is that under certian circumstances the property can be changed over to an llc. This is understood to mean that as long as the llc will be under the same name as the loan it's perfectly fine. 

he added that before the rule was changed people put properties in llc all the time anyway because as long as you were making payments fannie didnt care and turned a blind eye. 

There is no reason for them to call in a loan on a technicality if they are getting their payments on time. 

That being said, i spoke to someone who had made this llc switch before the rule changed and he had missed two payments. The lender called and said they were calling the loan on the due on sale clause.

Bottom line

my lender said its totally above board and i can legally  go ahead with it without any issues. 

Now all i need to do is call back my attorney ;)

Nice to have disscusion with a conclusion. 

You have all been terrific. Thank you so much for your input and advice! 

Happy investing 

Mordechai

Quote from @Andrew C.:

Quote from @Jonathan R McLaughlin:

@Mordy Chaimovitz sigh. Another post asking " there is something I want to do that I have been clearly been told by qualified people is not allowed/illegal/unethical/inadvisable to do"....is there a way I can do it anyway? 

So I'll get off my small horse and just say that "lots of people do it and it often works because they usually don't care"  isn't much of a defense if the lender does care and also that you now have a situation where the LENDER HAS CONTACTED YOUR ATTORNEY TO SAY DON'T DO THIS. 

How do you expect to get away with this exactly?

 I think you've missed that the rules have changed. @Patricia Steiner provided the link to the relevant change, which is specifically that:
1) NO, you still cannot close the purchase in the name of an LLC and get a freddie/fanny mortgage
2) YES, it is fully allowed to transfer the title into an LLC if you have a confirming mortgage and they guidance they provide to lenders is that they are not allowed to exercise the due on sale for this, provided the LLC is majority owned by the same person/people that were on the title when the mortgage was originated.

so this is no longer a game of 'can I get away with this, since most people seem to be able to'. It's now actually a fully above-board move that's allowed. At least in the general case.

FWIW, I still don't like it and prefer to close the purchase in the name of the LLC and with a loan made to the LLC, but I'm able to find 'commercial' loans that I'm as happy with (or happier) than what's available via a conforming loan so .

Investment Info:

Townhouse buy & hold investment.

Purchase price: $500,000

Off market deal for two attached townhouses. Private investor brought cash to close. I brought the deal. 50/50 split on cashflow and equity. ARV of punch list of sellers rehab which I took over should bring a nice ROI.

Currently renting it out.

What made you interested in investing in this type of deal?

I knew the seller was very motivated

How did you find this deal and how did you negotiate it?

Seller was someone I knew from the area.
I negotiated it by giving my offer.
The seller didn't even bother to respond as it was much lower then he had in mind.

My Mentor suggested that I call back and ask him what he had in mind without changing my offer. Turns out we were 100k apart in price!

I was advised not to budge in price (not that it mattered as we were not even in the same ballpark)

Six weeks later out of the blue the guy called me that he accepted my offer!

How did you finance this deal?

Private Investor partnered with me 50/50. He provided downpayment and additional expenses. Then I took out conventional residential loan on the rest. I brought the deal to the table and managed the transaction and am managing the property.

How did you add value to the deal?

Put new boiler ac and furnace in one unit. Totally re did the landscaping. Changed floors in the bathrooms. Put on stainless steel appliances. And some other punchlist items leftover from the sellers unfinished rehab job.

What was the outcome?

Rents in the area have increased significantly since I underwrote the deal. I am very close to getting tenets in there. And it's looking promising

Lessons learned? Challenges?

When taking over someone's unfinished work. Be very very clear upfront what you expect the seller to finish in order to close. The last few weeks before closing were very stressful. We were very close to breaking the deal a day before closing.

Unbelievable Amount of concepts for me to digest here. Thank you all so much. 

What software / app did you use for the virtual staging?

Quote from @Jonathan R McLaughlin:

@Mordy Chaimovitz sigh. Another post asking " there is something I want to do that I have been clearly been told by qualified people is not allowed/illegal/unethical/inadvisable to do"....is there a way I can do it anyway? 

So I'll get off my small horse and just say that "lots of people do it and it often works because they usually don't care"  isn't much of a defense if the lender does care and also that you now have a situation where the LENDER HAS CONTACTED YOUR ATTORNEY TO SAY DON'T DO THIS. 

How do you expect to get away with this exactly?

Loved your post, and your horse

Im not looking to get away with anything, sometimes there are practices in an industry that become standered despite inherent technicalities.  I was interested to hear what the general attitude in the real estate world/lending world is in my situation. 

however  I hear your point loud and clear and it is well taken and appreciated!

thank you!

Sorry about above qoute without my remarks. 

the main goal in transferring to the llc would be for protecting my personal assets in case of a litigating tenant etc as well as supposed tax benefits of being an LLC.

My attorney said i have insurance in case of litigation. And the tax benefit, well im not even sure i will need them at this stage of the game. 

what do you all say?

Quote from @David M.:

@Mordy Chaimovitz

Correct, mostly. The Due on Sale Clause allows the Note holder to call in the loan in the case of the transfer of the property. The Fannie Mae guidelines appeared to have changed recently in the case of transferring to a single member LLC. However, I really wouldn't do it since the mortage would be left behind in your name. Also, if you keep doing this it, in my layman's opinion it looks like you are using the lLC as your alter-ego, thus piercing your corporate veil

Also, correct... Legal entities such as LLC's are not eligible for conforming residential loans. If the LLC takes TItle, you need to obtain commercial, i.e. non-residential, financing.

Quote from @Randall Weatherall:

What did your lender say?  What do the loan docs say and has your attorney reviewed those specific docs?

 My attorney did the closing. He knows the documents. I asked him why we didn't set it up as an llc before closing. He said my lender told him the loan can't be made out to an llc.

Not sure why.

I am trying to get through to my lender now. 

thank you all for your insight.