LLC,transfering title, due on sale clause,+ making it all legit

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LLC,transfering title, due on sale clause,+ making it all legit

Mary Jay
Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes

Hi guys, 

I have a question for you...Ive been trying to transfer my 2 houses into 2 LLCs but really worried about due on sale clause. (If the bank finds out I transferred a house into an LLC the bank can make me pay all the mortgage balance within short period of time)

Couple of questions: 

1) have you guys transferred your properties into LLC in the past while having mortgage not paid? Have you had any problems with your bank (lien holder)?

2) Did you have a title company do the transfer? Or how did you transfer? An attorney quoted me to do the transfer for 1K per house...

3) Do you have a business account for your LLC?

4) How do you collect your rent? Renters deposit it into your business account that holds your LLC?

5) Do you do any yearly meetings for your LLC or anything like that?

6) Do you have a trust holding your LLC or LLC holding trust? Or what is your structure?

Thank you guys in advance for sharing

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Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
8y

I transfered title of the property with a warranty deed to a land trust that I was the beneficiary.

I then assigned the beneficial ownership to the LLC.

My lawyer, who is also my land trust trustee charged me under $400 for the Land trust and deed.

I created my LLC and used an operating agreement that I bought from an an asset protection firm.

The LLC has its own account and all rents and expenses eventually go through it.

However as I have multiple LLCs for different properties, I also have a C Corp as management entity that is under contract with all the LLCs. My tenants are dealing only with my C corp for the rent and lease. 

All my LLC are owned by a WY holding LLC, that is owned by my living trust for estate planning.

I have annual meetings and board of directors meeting for my C corp.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Reallt just depends on the bank. Almost all conventional mortgages have that clause. Some lenders don’t have an issue with it and some do. Just depends. Probably should have a bank account. You can get rent deposited there. If you need annual report or meeting usually depends on the state
    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    Hi Mary, I am in a similar situation and trying to decide how/when to transfer the title without triggering my mortgages (which I think I've come to realize is virtually impossible). Curious what are your reasons for wanting to run the properties through the LLC? Liability protection or something else? My reason is that I co-own both properties with a family member. Running everything through a co-owned LLC seemed easier than trying to split everything between the two of us on a personal tax level.
    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Tyler Daniels:
    Hi Mary,

    I am in a similar situation and trying to decide how/when to transfer the title without triggering my mortgages (which I think I've come to realize is virtually impossible).

    Curious what are your reasons for wanting to run the properties through the LLC? Liability protection or something else?

    My reason is that I co-own both properties with a family member. Running everything through a co-owned LLC seemed easier than trying to split everything between the two of us on a personal tax level.

     For liability protection mainly...

    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    8y

    I transfered title of the property with a warranty deed to a land trust that I was the beneficiary.

    I then assigned the beneficial ownership to the LLC.

    My lawyer, who is also my land trust trustee charged me under $400 for the Land trust and deed.

    I created my LLC and used an operating agreement that I bought from an an asset protection firm.

    The LLC has its own account and all rents and expenses eventually go through it.

    However as I have multiple LLCs for different properties, I also have a C Corp as management entity that is under contract with all the LLCs. My tenants are dealing only with my C corp for the rent and lease. 

    All my LLC are owned by a WY holding LLC, that is owned by my living trust for estate planning.

    I have annual meetings and board of directors meeting for my C corp.

    2Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    @Mike S. How did you transfer the properties into the LLC without triggering the mortgage to be called due?
    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    8y

    The Garn St Germain Act protects you from a due on sale clause if you are the beneficiary of the land trust. What you do after with assignments is private, and you can always revert it back to you if needed by just signing the assignment paper and have it accepted by your trustee.

    0Reply
  • Scott Mclaren
    Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
    8y

    I do it all the time. Have never had a lender call the loan. I just get a warranty deed fill it out notarize it and record it. In Maricopa county it costs only a few bucks. As long as payments are getting made they dont care.  Just keep your name on insurance policy as an additional insured. 

    1Reply
  • Scott Mclaren
    Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
    8y

    I do it all the time. Have never had a lender call the loan. I just get a warranty deed fill it out notarize it and record it. In Maricopa county it costs only a few bucks. As long as payments are getting made they dont care.  Just keep your name on insurance policy as an additional insured. 

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Mike S.:

    The Garn St Germain Act protects you from a due on sale clause if you are the beneficiary of the land trust. What you do after with assignments is private, and you can always revert it back to you if needed by just signing the assignment paper and have it accepted by your trustee.

     Thank you so much! 

    That is Interesting...I was not aware that there is an act that can do that...

    It is from 1980, I wonder if its still valid, do you know?

    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Scott Mclaren:

    I do it all the time. Have never had a lender call the loan. I just get a warranty deed fill it out notarize it and record it. In Maricopa county it costs only a few bucks. As long as payments are getting made they dont care.  Just keep your name on insurance policy as an additional insured. 

     Thank you, Scott!

    1) Where do you get warranty deed? Does Maricopa assessors office provide the template for Warranty Deed?

    2) So on your insurance policy, do you put your LLC name and your personal name as additional insured? Or is it only your personal name?

    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    @Scott Mclaren do you usually work with a local lender or a big national lender like Quicken Loans and does that even make a difference?
    0Reply
  • Nick Bendick
    Insurance Agent / Investor · Shelby Township, MI · Member since 2015 · 43 posts · 16 votes
    8y

    @Maryjay I was actually just one the phone with the Maricopa county assessor yesterday looking to do the same thing. I have always paid someone to fill out the paperwork but will do it myself this time. I have always done a quit claim deed. Maricopa county doesn't provide a form you have to purchase or search for a free one online if doing it yourself. 

    The bank may call the loan. The chances are slim but you still have to be prepared in the event it does happen. 

    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    8y
    Avoid using a quit claim deed. Instead prefer a warranty deed to avoid loosing your title insurance. https://m.youtube.com/watch?feature=youtu.be&v=_uzbASbH3aY
    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Nick Bendick:

    @Maryjay I was actually just one the phone with the Maricopa county assessor yesterday looking to do the same thing. I have always paid someone to fill out the paperwork but will do it myself this time. I have always done a quit claim deed. Maricopa county doesn't provide a form you have to purchase or search for a free one online if doing it yourself. 

    The bank may call the loan. The chances are slim but you still have to be prepared in the event it does happen. 

     Thank you. 

    By the way, Ive heard to avoid quit claim as well..

    Here is what Ive found from legal zoom or one of those websites:

    How Do I Transfer Title of a Property from a Person to an LLC?

    1. If you have a mortgage on the property, contact your lender. ...
    2. Form an LLC, if you haven't already. ...
    3. Obtain a Tax ID number and open an LLC bank account. ...
    4. Obtain a form for a deed. ...
    5. Fill out the warranty or quitclaim deed form. ...
    6. Sign the deed to transfer property to the LLC. ...
    7. Record the deed. ...
    8. Change your lease.
    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    @Mary Jay I don't think that first step in contacting your mortgage is wise. I would imagine that would out it on the radar and once you transfer title to the LLC it could trigger than to call the loan due. I have no experience with this as I'm trying to figure things out for myself too but my lender figuring out that I have transferred the title and calling the loan is my biggest concern.
    0Reply
  • Mary Jay
    OP
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Tyler Daniels:
    @Mary Jay I don't think that first step in contacting your mortgage is wise. I would imagine that would out it on the radar and once you transfer title to the LLC it could trigger than to call the loan due.

    I have no experience with this as I'm trying to figure things out for myself too but my lender figuring out that I have transferred the title and calling the loan is my biggest concern.

     I agree with you. I think all other steps, except that one, are needed though...

    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    Does anyone now if your lender gets notified by the county if a warranty deed or quit claim deed to transfer title is filed?
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Mike S.:

    I transfered title of the property with a warranty deed to a land trust that I was the beneficiary.

    I then assigned the beneficial ownership to the LLC.

    My lawyer, who is also my land trust trustee charged me under $400 for the Land trust and deed.

    I created my LLC and used an operating agreement that I bought from an an asset protection firm.

    The LLC has its own account and all rents and expenses eventually go through it.

    However as I have multiple LLCs for different properties, I also have a C Corp as management entity that is under contract with all the LLCs. My tenants are dealing only with my C corp for the rent and lease. 

    All my LLC are owned by a WY holding LLC, that is owned by my living trust for estate planning.

    I have annual meetings and board of directors meeting for my C corp.

    transferring to land trust will invoke the alienation of title clause as well..  

    as long as your not a slumlord  landlording is not a very risky business that calls for expensive complicated ownership structures.

    Insurance is far more important.. And will protect you better.

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    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    8y

    Avoid contacting your lender... See mistake #4

    0Reply
  • Brian Dickerson
    Rental Property Investor · Delray Beach, FL · Member since 2017 · 102 posts · 44 votes
    8y
    Originally posted by @Scott Mclaren:

    I do it all the time. Have never had a lender call the loan. I just get a warranty deed fill it out notarize it and record it. In Maricopa county it costs only a few bucks. As long as payments are getting made they dont care.  Just keep your name on insurance policy as an additional insured. 

    So with I originally got the insurance policy in my own name, then transfer the title of the property to the LLC...do I have to add the LLC to the insurance policy to make it legit?

    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    8y
    Originally posted by @Brian Dickerson:

    So with I originally got the insurance policy in my own name, then transfer the title of the property to the LLC...do I have to add the LLC to the insurance policy to make it legit?

    Yes, you need to put the LLC as named insured, and yourself as additional insured.

    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    Originally posted by @Mike S.:

    Avoid contacting your lender... See mistake #4

     Mike, I assume this would be the same if you were not going the route of land trust and rather a warranty deed or quit claim transfer, but my question is, if you don't tell your lender, does the county notify them? If not, how do they find out, I can't imagine lenders go digging through title transfers to see if they can catch someone in a transfer.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Tyler Daniels  they can be notified by insurance change or by the county I believe 

    0Reply
  • Tyler Daniels
    Member since 2018 · 8 posts · 0 votes
    8y
    Originally posted by @Caleb Heimsoth:

    @Tyler Daniels  they can be notified by insurance change or by the county I believe 

     Thanks Caleb. That's where my concern is, that I make a title transfer and the lender is notified by a third party and then calls my loan due

    0Reply
  • Nick Bendick
    Insurance Agent / Investor · Shelby Township, MI · Member since 2015 · 43 posts · 16 votes
    8y

    When you finalize the transfer you need to update your insurance policy to reflect the new ownership of the LLC. Talk to your insurance agent on how to do this. Some companies will add it as an additional interest and some put the LLC as a named insured. Either way it has to be done even at the risk of your lender finding out. As just one broad example, if you gloss over this update and a lawsuit related to the property occurs your LLC would be in trouble. It owns the property but the insurance policy will provide no liability protection to it becuase it's not listed.

    1Reply
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