transferring into LLC

13 Replies

ok guys just to make sure i got this straight this is how it goes.
I own 4 properties that i want to transfer to my LLC, so what i would need to do is quit claim properties into LLC then after that follow up with my ins policies and transfer those into my LLC correct. Also will i need a lawyer to do the quit claim or can i do it myself. I called stewart title co and they require a lawyer for quit claims deeds.

Originally posted by Josh Green:
just remember that if the properties have mortgages against them then the due on sale clause may be triggered. its quite rare, but possible nonetheless

Quite right Josh. That being said, I've never seen the DOS clause enforced, especially in this case where you are transferring the property to an entity of which you maintain control. These days the banks just want to make sure they get paid. Seems they really don't care who's doing the paying..:-)
regards,
Bill

I agree with Bill. As long as the bank continues to receive interest and payments they will turn their head.

If you are dealing with four properties already you should be consulting with a real estate tax specialist and attorney on how to structure your entity. If you have a good attorney it will save you money.

Originally posted by Kirk B:
yes then in 3 years when interest rates go up to 8-10% see if they call due on sale then.


Interesting in theory. But I think a bank would be hard pressed to explain why it has been taking the payments for three years, and now when interest rates go up, it suddenly decides to call the loan due. But, then, that's just me :-)
regards,
Bill

I would be very interested to hear from as many people as possible on this issue. We have been going around and around with our CPA and RE Attorney about whether or not we should transfer our buy-and-hold properties into an LLC because of the concern about the due-on-sale clause. What are people's thoughts/experiences on this issue?

Originally posted by Kim Kelly:
I would be very interested to hear from as many people as possible on this issue. We have been going around and around with our CPA and RE Attorney about whether or not we should transfer our buy-and-hold properties into an LLC because of the concern about the due-on-sale clause. What are people's thoughts/experiences on this issue?

What a conundrum! :lol: On which side of the issue is your attorney and accountant? And are they even on the same side??? I would hope that your attorney is in favor of the transfer if for nothing more than the liability protection. If these are rental properties you are FAR more likely to be sued by a tenant than you are to have the DOS clause exercised by a bank. As I pointed out in an earlier post it is very unlikely that the bank will call the loan due, especially if you are transferring the property to an entity over which you maintain control. I have been buying property sub-2 for years and have NEVER had a bank call the loan. Could they? Absolutely since there is a clear transfer of ownership. Will they? Probably not.

Just remember, there is no such thing as "due on sale" jail. What is the worst that could happen if the bank DID call the loan? Now, contrast that with the worst that could happen should a tenant in one of your properties get "sue happy." I think I'd take my chances. But that's just me :D

regards,

Bill

Ive read up on land trusts as a way to transfer property ownership without it being publicly recorded so the bank wont know and not trigger the DOS clause. Basically you set up a land trust with you and your LLC as beneficiaries and then drop yourself leaving the LLC and when that gets recorded its not public so the bank doesnt know.

Originally posted by Joey J :
Ive read up on land trusts as a way to transfer property ownership without it being publicly recorded so the bank wont know and not trigger the DOS clause.

I've been studying this as well. My understanding is the transfer of title into a land trust will NOT trigger a due on sale clause provided the transfer is into an inter vivos trust, i.e., the borrower remains the beneficiary of the trust (Garns - St. Germain Act 1982).

However, the DOS clause could be triggered if that beneficiary is changed. But since a change in beneficiary is not recorded, unlike the change of title, it would be up to the mortgage company to figure it out.

It sounds risky on the surface, but the more I look into it, the less likely it seems the lender will figure it out. After all, they have more pressing matters to attend to, like foreclosing on non-performing assets, than chasing down the beneficiaries of every trust taking title to property. And they're not too bright anyways (as institutions, I'm not talking about individuals). :wink:

My big question about land trusts is privacy concerns. Sure, public records will now show your property as being owned by some obscure trustee, but won't the grant deeds/quick-claim deeds that you signed to re-convey the property over to the trust also be public record? It seems anybody with half a brain will see, "Hmmmm, 123 Main Street has been owned by ABC Trust since 2004. I also see a Mr. Steve Stevens transferred that property over to ABC Trust. I'll bet Mr. Stevens is the beneficiary!"

I'm also wondering if the reverse is true, i.e., an asset search for Mr. Stevens fails to uncover any current assets, but if the deeds that transferred any property into a trust can be found, it might be assumed (and investigated) that he is still the beneficiary of those trusts.

Any thoughts or experience with this??? Thanks all. Just loving this forum.

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