Transferring Deeds and the Due on Sale Clause

3 Replies

I am in process of setting up LLCs to begin the process of getting properties transferred over and out of my personal name. I have 7 investment properties with 1 of those commercial. I setup three entities a residential, a nonresidential, and a management LLC. The strategy would be to transfer the residential title/deeds into the residential LLC and commercial title/deeds into the commercial LLC and then lease those to the management LLC who would then sub-lease to the tenants.

Has anyone with experience transferring property deeds that are financed with mortgage companies ever had any issues with the due on sale clause and is there anything I should be aware of during this process that other beginners may miss? 

I have heard that as long as the LLC is in the same name/address as the primary mortgage payer and the payments remain in good standing then usually you would have no problems. Has this been the general outcome that you have experienced? If the mortgage is in both my wife's and my name would it matter if my name is the only one on the LLC?

How do you handle your mortgage payments? Would I start paying the mortgage from the LLC business account or still from my personal bank account?

and my last question! I've heard the saying, "it's better to ask for forgiveness than permission", does this apply here?  Should I contact the mortgage company and let them know I'll be transferring the property or would that be more like waving a red-flag in the air?  

as always, I appreciate anyone's response and advice!

Transferring title like this is common. If you buy a property for cash in an LLC, and you need financing, you quit claim it to the name of the person getting the loan, then quit claim it back to the LLC after.

The main reason is the loan isn't in the name of the LLC, so they can't use the property to collateralize it. Once the loan is collateralized, the lien stays with that property. Title can be held by anyone, but the lien won't change.

As far as "due on sale", the contract doesn't say it's automatic...it says the lender has the right to call the property due. I've never seen it happen. As long as the borrower is a majority member/owner of the LLC, and the payments are being made, the lender isn't usually concerned...they want their money.

Where you could run into a problem is if the borrower leaves the LLC. I've had lenders tell me that this is the way to do it.

@Joe Villeneuve I have asked around and that is usually what others have said, they have never seen it been called due. When you say the lien won't change, that means I would continue to pay the mortgages from my personal bank account or can I pay them from my business bank account or does that matter you think? 

thanks for your response!

Originally posted by @Derek Clark :

@Joe Villeneuve I have asked around and that is usually what others have said, they have never seen it been called due. When you say the lien won't change, that means I would continue to pay the mortgages from my personal bank account or can I pay them from my business bank account or does that matter you think? 

thanks for your response!

 Pay it out of the account that works best for your tax and accounting purposes.

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