Quick claim deed- voids lender/owner title insurance?? Due on sale??

Question

Hello, question... is it true that if I quick claim deed a property to an LLC that the lender TITLE insurance/ owner TITLE insurance policy will no longer be valid. I keep hearing different things I heard that the lender title insurance policy will be valid but the owner title insurance policy will be voided.  Any experience with this?

Also, if I plan to refinance in the next year should I get the owner title insurance now since I know I will have to purchase that insurance  again one I refinance?

Lastly, lol.... anyone ever had an "due on sale" called for a property that you deeded to your LLC? just curious because I'm aware thats a possibility also. Thank so much!

Matt Devincenzo · Answer

Clarification; it is a 'Quit' Claim not Quick Claim. It refers to one party (you) 'quitting' or giving up your claim to another party (your LLC).

Partial answer: QC to your LLC may not be a DOS event if you follow the more recent lender guidance on the LLC requirements (I'm not sure what they are, just that they exist). A couple years ago they acknowledged that they will allow LLC vesting for asset protection when the original borrower owns the LLC. That's a very simplistic summary, but that was the general thrust of the change in the policy.

Account Closed · Answer

Review your owners policy and look for the continuation of coverage provision. Most policies allow for continuation of coverage when the insured conveys into a LLC in which they are the sole member or have a controlling interest.

Please feel free to contact me if you additonal questions.

Thank you,Brendan

Real Property Recording Services LLC

https://rprsllc.com

Tom Gimer · Answer

Interesting that this thread has been revived.

@Chris Seveney that unpunished decision clearly involved an older policy form. The outcome with a more recent policy might be 180 degrees due to a change in the definition of the “Insured”.

However the analysis regarding transfer to the LLC via quitclaim deed having the effect of terminating coverage for deed warranties is really interesting. Point being you could clearly get a different  outcome on an in-house coverage decision vs. a claim that ended up being litigated.

Bruce Lynn · Answer

I've seen DOS happen a couple of times, I don't think it is all that common.  I don't remember the circumstances though.  I've also seen where the lender demanded the deed be transferred back to the original owner, saying they did not allow deed transfers.  You should probably read through your loan documents and check with title to make sure what you can and can't do.

Why transfer to LLC?  In my experience most people don't get any anonymity for all kinds of reasons. I'd venture to say within 5 mins of research I can figure out who the owner of the LLC is.  It's pretty rare they get way covered up and I can't figure it out quickly.   Most of the attorney's I work with also say they can beat the LLC about 80-90% of the time if you're trying to use it for asset protection.  They talk about all the procedures to help you keep them separate, but most people mix things up so much it invalidates the asset protection.  Even the worst and most devious rule breaker lawyer I know, says he advises against LLC for most of his clients.  He says the best way not to get sued, is be a good landlord.  Inspect the property on a regular basis, be good to your tenants, fix things when they break, give them a nice basket and gift card at the holidays.

One thing I do like about LLCs is they can make some transfers easier.  Get several properties in one LLC and if you want to sell the entire LLC you can do that without having to sell each individual property.  Or want to transfer them to kids, perhaps easier to do than transferring 10-20-100 individual properties.

Peter Walther · Answer

I believe giving an opinion on the effect of an action on contractual rights might be construed as practicing law.  As I wrote above, conveying title to the land is not prohibited by a title policy, whether the Grantee will be an Insured under the existing policy depends on if it meets the policy definition of Insured.

Bruce Lynn · Answer

@Rahnesha White   Another consideration you may want to evaluate is the cost of insurance.  Many of our single family investor clients are seeing higher rates on the LLC properties versus ones in their own names.

Chris Seveney · Answer

@Rahnesha White

Not legal advice and not sure what the answer is but noting  There was a case on this several years ago  Pak vs. First American Title Insurance Company, 2020

Where transfer to LLC was voided based on clause in policy.

Tom Gimer · Answer

Of course you can transfer your property into an LLC. The question, however, is whether doing so could affect coverage under an existing title insurance policy. As the title agent or lender rep, giving an answer to that question could be considered providing legal advice... especially if the answer was "sure, go ahead you'll be fine" and the insured relies upon the advice, makes a title change, and coverage under the policy is affected.

Peter Walther · Answer

My original response to your post was to your reference to going to the title agent for advice but the same holds true for getting an opinion from the lender.  Please keep in mind that neither a title agent nor loan broker is party to the title policy or mortgage so cannot bind the title insurer or holder of the mortgage with their opinion.  I can tell you that in my career of handling title insurance matters I had more than one occasion to advise an Insured that I would not opine on how a particular action would affect their coverage and advised them the contract spoke for itself and I didn't deal in speculation.

Quick claim deed- voids lender/owner title insurance?? Due on sale??

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