Rental Property Investor · Franklin, TN · Member since 2010 · 43 posts · 32 votes
Hi.
I have 4 rental properties financed through 3 different mortgage companies. 2 of the 3 told me today that they would call the mortgage due if I transfer the property to an LLC.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
You can transfer the property to a trust and assign the beneficial interest from the trust to your LLC. If the lenders won't let you transfer them and you are trying to protect yourself there is no other good solution.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
I just wanted to make it clear to everyone that assigning the beneficial interest to your LLC DOES trigger the due-on-sale clause. Even Bronchick does not dispute that. It won't be of public record and your water bills, etc. will be fine because you are not selling the property for the context of this thread. The OP is just transferring the property to his legal entity.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Jeff L.:
But.. would transferring the titles into a trust provide any kind of liability protection?
Jeff, if the trust is revocable (and most property holding trusts are) there is little to no asset protection. You need to follow Bryan's suggestion of combining the use of the trust with the LLC to get that.
UPDATE: Sorry guys, I just noticed that others answered this..I missed those before responding...
Real Estate Investor, CA · Member since 2012 · 93 posts · 20 votes
14y
I also have been wanting to transfer my mortgages into my LLC but have been apprehensive. Somewhere I heard if you have impounds, it can be easier to be identified by the lender and commonly is. The mortgage companies will always tell you if you contact them about this that they will call the mortgage, but I have only heard a few cases where they actually did. Things may have changed now as we are in a new era with mortgages and how they operate though.
I had the mortgages long before the LLC. I have my trust own the LLC and have a large umbrella over everything. All my other properites that I own free and clear are in the LLC already. If you try to transfer any properties to your LLC, please let us know what happens.
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
14y
if you're dealing with a rather large bank, the canned response that they've been taught is to say they'll call the loan due..a few years ago, i told Chase I wanted to transfer a property to an LLC of mine..the lady on the phone told me they would call the loan due..a few years later, they still have been accepting my monthly mortgage checks...not bragging..just FYI
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
Originally posted by Bryan A.:
if you're dealing with a rather large bank, the canned response that they've been taught is to say they'll call the loan due..a few years ago, i told Chase I wanted to transfer a property to an LLC of mine..the lady on the phone told me they would call the loan due..a few years later, they still have been accepting my monthly mortgage checks...not bragging..just FYI
Good point, because after notice and then acceptance of payments they may have waived the right to call it. Like I said, local custom will come into play as to what will actually happen. And calling it will start the non-judicial foreclosure in most cases, so be preparied to take actions to counter such an action.
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
14y
Originally posted by Bryan A.:
... a few years ago, i told Chase I wanted to transfer a property to an LLC of mine..the lady on the phone told me they would call the loan due..a few years later, they still have been accepting my monthly mortgage checks
I believe this is 99.99% of the case. The banks are having enough trouble finding their @sses with both hands right now, much less bothering with title transfers involving current mortgages.
I posted a short anecdote recently about one investor I know who got called by the lender regarding a property he took over "subject to". The only reason it came to the bank's attention was because of a mix-up in the monthly payment amount. Long story, short, they didn't really care about the new owner on title, they just wanted the few hundred dollars they were owed. After it all got cleared up, he never heard from them again.
Investor · San Ramon, CA · Member since 2011 · 1k+ posts · 569 votes
14y
Originally posted by Bryan A.:
if you're dealing with a rather large bank, the canned response that they've been taught is to say they'll call the loan due..a few years ago, i told Chase I wanted to transfer a property to an LLC of mine..the lady on the phone told me they would call the loan due..a few years later, they still have been accepting my monthly mortgage checks...not bragging..just FYI
I read this and I accept this... but here's the counter...
Right now, the banks have no reason to call the loan due. Interest rates haven't changed much in the past few years, in fact they've probably dropped... but lets fast forward 5 years... what do we think these banks are going to be trying to do when market interest rates are 9 or 11% and they have these old investment mortgages at 4.5%? Assuming we're out of this foreclosure mess and they have the time, I'm guessing they'll look for any reason they can to call those older, low interest rate loans due just to force the higher rate refi.
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
14y
nathan, we're all dealing with assumptions and hypotheticals...i assume that the bank will have a tough chance calling the loan due after i gave them notice, and they've been happily accepting my checks for the last 60 months worth of payments...you assume different..that's fine with me. i'll take my chances, bc the alternative is not having liability protection...i think its much more likely a tenant or someone else will sue me for some BS, than the banks calling my loan due...id rather have the asset protection and see what the banks do in a few years...then again, it's always nice to have the cash in the bank in case they call my loan due as well :)
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
All good points. I still think it would be very hard for counsel for the bank to argue that the intent of the law applies if they accepted payments for many years and the property was transferred for an investor to protect their assets. That is an extremely small risk to me and it is more than offset by the risk of a cause of action against you personally for not transferring the property.
A trust with assignment of beneficial interest seems fine to me for this.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
14y
10 or so years ago, I was told I could not evict a tenant if they were paying. Well... a few years ago I had a tenant with a dangerous dog... not allowed per the (contracted) lease... and took them to eviction court. They were payment-wise current. The judge ruled in our favor and upheld the eviction.
What's my point. A contract is a contract. You violate the contract and you may suffer the consequences.
I will add this, though. If a financial institution (FI) accelerates, they still need to go through a special proceedings hearing... and you can make their case difficult. In NC, as Bryan A. and I are, our legislature made some 'great recession' tweeks to statute that eliminate one bank (what I call) 'self-help' remedy. The new wording is "All amounts received by a servicer on a home loan at the address where the borrower has been instructed to make payments shall be accepted and credited, or treated as credited, within one business day of the date received..." If you are paying, as Bryan A. points out, the (miniscule) loophole legislature created helps our case and I have some confidence that the clerk will dismiss the proceeding. Sorry, no case history here that I can find.
If someone tried this (acceleration on DOS default) on me, I'd 1) attempt to discuss rationally with FI, 2) address the state Commissioner of Banks (per my Sep 16 '11 post on BP), 3) petition the attorney general, and 4) call local TV consumer advocate.
To the original post. Consider engaging an attorny to, with attorney recommendation on attorney letterhead, recommend deed transfer for asset protection and cite this is not a sale per D-T restrictions (no transfer tax stamps). Just a thought.
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
14y
I think you are over thinking the LLC thing.
Unless you have a shi*t load (advanced real estate term) of assets to go after I wouldn't bother at this stage.
I have a ton of LLC's & corps and they are just a pain. Speaking from experience when they sue they still name you personally and if the claim or damage is big enough they will pierce your corporation.
Get an umbrella policy and don't worry about an LLC until you have quite a few properties.
Another thing to consider is sometimes when you transfer to another entity you may be re-assessed your property tax.
Lender · Houston, TX · Member since 2012 · 83 posts · 69 votes
14y
Sorry I'm late to this conversation, but I have a couple of quick things I'd like to add. And please excuse me if I've missed something. I'm not sure that transferring the properties into an LLC is really worth it for risk limitation. Or at least I guess I'd be confused by that move. Here in Houston almost everyone I know has no desire to hold rental properties in an LLC because they can't get the FNMA financing on the property that way. FNMA allows you to have up to ten rental properties. The jump in interest rates on a portfolio financed via an LLC makes is considerably more expensive because you can't do it through FNMA. And for a FNMA financed portfolio, the asset protection and liability protection should come from an insurance policy. The cost of the insurance policy should be considerably less than the jump in interest payments from saying goodbye to the FNMA financing. Would love to hear any thoughts on this.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
The techniques and issues being described in this thread assume:
1. Finance with FNMA or cheaper financing that is not allowable with an entity
2. Transferring property to avoid legal liability
The question is whether or not:
3. The portfolio loan closed inside of an entity with higher loan constants is worth the small risk exposure of
4. The remote risk that the FNMA lender will call the note due if your place in trust and assign the beneficial interest to your entity
So item 4 is really what is in question. For FNMA loans they are virtually universally sold off in pools and there is a servicer assigned. My understanding is that the servicing entity does not get paid their fee if they don't service the loan so there really is no financial interest in them calling the loan.
Furthermore, it seems exceedingly unlikely that the lender would be successful in calling the note if they accepted payments for years after the transfer to the trust. They would likely have to fight a legal battle and there is no real financial interest in them calling the note if it was sold off to one of the GSEs. Things could presumably change, but it seems like a huge uphill battle for the real investors in the loan to force the servicers to enforce clauses detrimental to them financially. Someone please correct/enlighten me if this is inaccurate.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
14y
Haven't we gone through this exercise before? The servicer agreements stipulate definition and enforcement on default. In a foreclosure proceeding for a property that my company bought, I researched the servicer's default swap rules for Bear Stearns ABS Series 2005-HE11. Wile digging through the document, I saw that it clearly spells out "If a mortgaged property has been or is about to be conveyed by the mortgagor and the master servicer has knowledge thereof, the master servicer will accelerate the maturity of the mortgage loan, to the extent permitted by the terms of the related mortgage note and applicable law."
See sections 'Enforcement of Due-on-Sale Clauses' and 'Due-on-Sale Clauses in Mortgage Loans'.
So in at least one servicer's case, the rules for these 4,768 loans ($641M in loans) are clear. Sidebar: 67% of this pool has assumable mortgages. Probably VA, but I don't know.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
Just because the rules say to do it doesn't mean they will. If they are impacted from a financial standpoint then that is what rules at the end of the day.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
14y
Originally posted by Bryan Hancock:
Just because the rules say to do it doesn't mean they will. If they are impacted from a financial standpoint then that is what rules at the end of the day.
So it comes down to sort of what my dad used to say, Don't speed if you can't afford the ticket.
If you can handle a potential due-on-sale clause, then go for it. If it would be too risky for you, then don't. We just gave up the LLC and went with the umbrella. Once we have more property, I'm sure we'll have to rethink, but up to 10, we should be fine.
Wholesaler · garden grove · Member since 2008 · 91 posts · 13 votes
14y
Jeff L:Thanks everyone. I've done a lot of digging (probably too much). It's just a bit overwhelming for us non-experts who do not not deal with this on a daily basis.
Jeff, if you read your mortgage note or if I'm correct you are allowed to transfer your name on title to a trust without the bank call the loan due. It's allowed by law.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
While I agree with the fact that you should not finance properties you couldn't refinance with technically-in-default loans that could be called I wouldn't let this scare people away from using debt in this manner. The risk that the loan will be called is very small, but non-zero. If the lender did attempt to call the loan they would potentially have a very big fight on their hands and the person borrowing the money would have a great case IMO.
Rental Property Investor · Franklin, TN · Member since 2010 · 43 posts · 32 votes
14y
Originally posted by Chris Martin:
Haven't we gone through this exercise before?
I'm sure it has been beaten to death but some of us here are new. I've tried to read every post I could on the subject but sometimes you have to relate it to your own personal situation. :-)
Rental Property Investor · Franklin, TN · Member since 2010 · 43 posts · 32 votes
14y
Originally posted by Tin Lam:
Jeff, if you read your mortgage note or if I'm correct you are allowed to transfer your name on title to a trust without the bank call the loan due. It's allowed by law.
One of the companies actually suggested something along those lines when I spoke with them.
The LLC was appealing because I would like to eventually build a business out of this and thought it would be a great place to start.
It seems like an umbrella policy is the way to go in the meantime until I get it all figured out.
Rental Property Investor · Franklin, TN · Member since 2010 · 43 posts · 32 votes
14y
My wife and I are coming to the summit this month. If this topic isn't covered in any of the break-outs, it cetainly would make a good birds-of-a-feather session. :-)
I have 4 rental properties financed through 3 different mortgage companies. 2 of the 3 told me today that they would call the mortgage due if I transfer the property to an LLC.
I am waiting to hear back from the third.
Has anyone else ran into this?
Jeff
Jeff, I know this post is from long ago but I'm curious what you ended up doing. Did you move them to an LLC (take your chance on DOS) or did you form a trust ?
I'm in a similar situation at the moment, I bought a property 4 years ago through USAA and would like to move it to my LLC as I'm starting in real estate investments slowly. I called the bank and it sounded like USAA does not have a problem with me moving it to an LLC for liability. has the law changed ?
if anyone else have any recommendations as well I'll take it! if USAA is OK with the LLC route should i do that or should still do the trust (LLC being beneficiary) route?
Thank you guys for your feedback ahead. Have a good day!
You can transfer the property to a trust and assign the beneficial interest from the trust to your LLC. If the lenders won't let you transfer them and you are trying to protect yourself there is no other good solution.
Hi @bryan is this still the best route to move forward for transferring an existing property ?
While I agree with the fact that you should not finance properties you couldn't refinance with technically-in-default loans that could be called I wouldn't let this scare people away from using debt in this manner. The risk that the loan will be called is very small, but non-zero. If the lender did attempt to call the loan they would potentially have a very big fight on their hands and the person borrowing the money would have a great case IMO.
I'm not so convinced that borrower has a fantastic defense to a foreclosure proceeding. Each state is pretty unique in these regards, but you're trying to engage the equitable defense of laches and unclean hands to the foreclosure sale, which is an equitable remedy. The likelihood of success is going to depend entirely on how Debtor friendly the local courts are. At least in the state of Virginia, I think the Courts would side with the Lender on this matter.
As always, consult a local attorney for legal issues.
Is interesting one cannot use a living trust to do the same thing as a land trust. This means those of us that have a living trust will have to recreate a separate trust(land) document? - Additional cost, etc. There should be a way of using a living trust? Any step by step approach into creating a DIY land trust?