Do you have to own a property free and clear to put it in a LLC?

4 Replies

Hi everyone, my question is can I have a mortgage on a property and transfer it into a LLC, or does it need to be paid off first, and also I have been told banks wont lend to a LLC if you try to buy a single family home investment property?

Thanks!

Hi Matthew,

You can have a mortgage on the property and still move it to an LLC. Just be aware that by doing so, you will have triggered the due on sale clause and the lender can request that you pay off the loan immediately. Most people have said that it's never happened to them, but you don't want to do something that could lead to issues so be wary.

There are banks/credit unions that will lend to LLC's but the loans will be commercial loans and require 20%-25% down. You may just have to search for smaller, regional banks rather than the big box ones.

Originally posted by @Bob Okenwa :

Hi Matthew,

You can have a mortgage on the property and still move it to an LLC. Just be aware that by doing so, you will have triggered the due on sale clause and the lender can request that you pay off the loan immediately. Most people have said that it's never happened to them, but you don't want to do something that could lead to issues so be wary.

There are banks/credit unions that will lend to LLC's but the loans will be commercial loans and require 20%-25% down. You may just have to search for smaller, regional banks rather than the big box ones.

Good answer Bob. I just wanted to add that I have seen people say that the bank did call the loan. Others have said they just had to transfer it back, so no big deal. Either way I am not a fan of violating mortgage contract terms as a business model.

Commercial loan is going to cost you a higher interest rate and likely shorter term. You can't beat a 30 year mortgage in your personal name. The terms are worth the risk in my opinion. Of course once you are over 10 properties, then commercial becomes the only option. 

My advice is to get a good liability policy. There is lots of discussion in the BP threads about this topic. Just search, "do I need an LLC" and you can read for hours about this one topic.

Thanks guys for the informative answers! Love BP

As some anecdotal evidence, the one example I have of a loan actually being called due is from a discussion with someone here in Atlanta who triggered an inquiry by the mortgage company because of some obscure reason related to them having done either a Subject To or some form of seller financing. Their LLC was on the deed and on the tax form, and the mortgage company didn't say anything. It was only until like the previous owner died did the mortgage company decide to call the loan due. I can't remember what the reasoning for why all of a sudden they wouldn't be happy with the arrangement. In other cases, the mortgage company, as stated above, simply demanded the property be deeded back to the individual on the loan.

Honestly, it seems like mortgage companies only care that someone is paying them, and since the loan is in the individual's name, they always have recourse.

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