Quitclaim deed to LLC and refinance question
Member since 2008 · 23 posts · 0 votes
Hi guys,
I have a couple of properties on my name and I am planning to quitclaim deed them to my LLC. What makes me confused is I'm planning to refinance them after couple of months. What it is going to happen when I apply for refinancing. The loans are on my name, but the titles are on the LLC? Which credit is going to be used for the refinancing mine or LLCs? Also once I transfer title do I have to cancel the insurance and apply for a new one with the LLC as beneficiary? Last one: Is there any way to remove the loans from my name? I heard from someone that he transfer everything into land trusts and then called the credit bureau and told them the he is not the owner anymore and they removed them.
Thank you very much
Happy thanksgiving
Chavdar
Chavdar,
Likely you will run into some land mines if you do what you are suggesting.
1. The transfer from your name to the LLC mostly works. Some lenders might want to call the loan due. Few will. They would be within their right to do so. You could transfer the loan back into your name if they objected to the LLC.
2. When you go to refi it is very likely you will have to refinance in your name. A few lenders might do the deal in the name of the LLC if you guarantee the loan.
Only when the LLC has a demonstrated track record (credit score, assets, income) will the lender start to consider a loan direct to the LLC. Many lenders will just pass on the deal. The ones that will work with an LLC are likely to charge slightly higher rates as there is added risk.
3. If you took out the loan and you sell the asset securing the loan that does not change the fact that you are responsible for paying the loan back. Hence you can not have it removed from your credit report just because the LLC bought the property.
A credit bureau might make a mistake but the loan is still in your name. Even if it did not show on your credit report failure to disclose the loan on a mortgage application would be mortgage fraud.
If the loan is in the name of the LLC and you have guaranteed the loan you still have to disclose the loan when asked on the application.
John Corey
In my opinion the practice of advising people to transfer properties via Quit Claim Deed to an LLC is just wrong.
It is not sexy, but the majority of asset protection issues are taken care of by having appropriate liability insurance and hiring a property manager.
Here are my reasons for not moving to an LLC
1. Your tax bill will go up. In my home state of TN the LLC has to pay a $300 a year bill to the Secretary of State plus a income tax that a privately owned LLC doesn't. (Now if the LLC is owned by family and is only used for passive income like real estate you can file and exception to the income tax, but not the $300 a year bill). Also if you don't live in TN , then you have to pay a registered agent around $100.00 You are now going to have to keep separate books and tax returns for the LLC.
2. Using a Quit Claim Deed kills your title insurance policy and opens y
ou to previous title flaws unless you do it properly through a closing agent and get new title policy for your LLC. (This is a complex scenario, but trust me it does kill it unless you use a warranty deed, but using a warranty deed means you have to pay transfer tax)
3. Insurance policies for an LLC are more expensive for many companies.
4. You can't get a loan on a property owned by an LLC unless it is non-conforming and personally guaranteed.
5. If you manage it yourself then they may sue you and the LLC. If you are negligent in your management of the property, then the lawyers may sue you anyway. To avoid this then use a management company.
Now if you own the properties free and clear or are paying cash then by all means put them in a LLC, but this is a rare exception.