Transferring a deed into an LLC, but mortgage is not re-assignable?

5 Replies

Hello all, glad to be here. My wife and I recently moved, and we want to rent out our previous residence. It's a single family house in NY. The deed is in my name and my wife's maiden name (we purchased the house before we got married). The mortgage is also in our names. We want to transfer this property into an LLC for liability protection before we rent it, but the mortgage is not re-assignable.

I was hoping we could continue to pay the mortgage either personally or from the LLC and hope that the bank didn't mind, but that carries the risk of them freaking out and calling the mortgage. My attorney recommended attempting to refinance the mortgage, which would essentially create a new note that we could assign to the LLC along with the deed.

I'm not positive we can qualify for a refinance currently, but we'll try.  That aside, does anyone have ideas for what the best way to handle this is?

From the banks point of view, why would they allow you to transfer something that you and your wife are personally liable for to an LLC that you can walk away from? And if you refinanced, I seriously doubt that a new bank would lend to a small new LLC without making you and your wife sign personal guarantees for it. So if you're still on the hook, why do you need an LLC?

Why don't you just load up on more insurance and if the tenant wants to sue because they slipped on a banana peel, then it's State Farm's problem, not yours.

Thanks Peter. We actually discussed exactly those points yesterday - the improbability of a brand new LLC getting any sort of loan without a personal guarantee (which might breach the LLC protection anyway), and the fact that we can't reassign the existing mortgage anyway.

I spoke with my attorney about loading up on more insurance, including an umbrella policy.  It's certainly an option, and may actually be our only option!

Leave it in your name, get plenty of insurance.  If you sell within 3 years you'll still get any gain tax free.

Here's another hypothetical. We pay off the mortgage now, record the deed free and clear under a new LLC. We then take a HELOC or equity loan on the property to get our cash back. Now the question remains - does this still breach the LLC protection if the equity loan is under our personal names? it's tied to the property, but not in the same way a mortgage is I don't think. Can we even get one under our personal names if an LLC owns it, even though we can show that we're the LLC's owners? Or, can we get one through the LLC itself? I'm guessing the answer to these questions is that the scenario would be identical to refinancing the mortgage as proposed above, as far as the LLC issues are concerned. Sorry if these are very basic questions, never had to deal with this sort of issue before. More insurance still seems to be the best answer and easiest solution.

Once you transfer it to the LLC, you can't get a "personal" HELOC. The whole "must own in an LLC" is Way overblown. Just get insurance.

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