I have seen some posts around this topic, but nothing that definitively answers my questions.
I just talked with a lender that will provide a loan in my name, even if the title for the property holds the name of my (to be created) LLC. I will, of course, get this in writing and run it by my attorney, but always good to have more advice than less!
- Has anyone heard of, and/or had success with, this approach before?
- Does the title company / title insurance company typically care that the loan is in my name as opposed to the LLC?
- Are there other problems, either up-front or down-the-road, that this approach may cause? For instance, if they sell this loan to Freddie/Fannie, could I expect some issues?
I don't have personal experience with this, but I've looked into it a bunch. Below are my answers based on what I learned (disclaimer: these are my opinions, I'm not an expert at this question) If anyone knows otherwise please correct me!
- I have heard of lenders doing this, but that they charge an interest rate that is associated with loaning to an LLC, not an individual. Is the lender offering you a rate that is the same as if you were taking title in your name?
- I spoke with a title company about this and they indicated that it wouldn't be a problem for them, so long as it's ok with the lender.
- Regarding problems down the road with the lender selling the loan - that's really on the lender I think, not on you.
Thanks! I feel good that at least the first response is "absolutely not!"
It does not seem they are giving me commercial rates on it (got quoted 4.625% for a 20-year; 5.25% for a 15-year). Bank is local (NE OH, NW PA) so perhaps that helps a bit.
I will be talking with my realtor, the lender, and my attorney today about this setup, and will post on here for others' reference when we come to a conclusion.
What makes you think that this is not a commercial loan? This is very common in a commercial loan, in fact all of mine are done this way.
Your post is a bit light on the details, but most lenders will require you to personally guarantee the loan one way or another. So typically what happens is that the lender will list the note and the mortgage as the LLC, but also ask the LLC members (and their spouses) to sign a guarantee as well. The lender could also make note to both you and the LLC, and the mortgage just acts as a security for the note. I'm not sure I see any reason why a lender would make the note only out to you but use the LLC property as a security. It's not that it can't be done --- just more paperwork.
Do you have a proposed copy of the note and the mortgage? What do they say?
For your last question, you do not appear to be getting a Freddie or Fannie loan based on the details you provided. The lender most likely cannot sell it to them even if it tried.
Dear @Chris Lucas
I read your post with interest. I wanted to post this in case somebody walks this walk, as it does not apply strictly to your case.
I bought my first rental house last year. While in the process, I was advised to title it under an LLC (asset protection). So I opened my LLC. The lender said that an LLC loan would not work (rates, eligibility, etc) but that I could buy it and then within 30 days do a quitclaim deed for $10 and transfer it to LLC.
My advisor said be careful, and that the LLC should have the same identity as the title (name in deed = name in LLC I.e. Only me and nobody else in the structure).
Then, welcome to Florida. To transfer property, you have to pay 70 cents/100 dollars of the encumbrance (mortgaged portion). In my case that was up to $1500 bucks, so given that the liability on that house wasn't much it didn't make sense. The FL Revenue agent told me however that because the property was under my name and the LLC included my wife, she would be gaining 50% 'interest' on the property, so it would be more like $750.
Went to see an attorney (not real estate but he's done some other stuff for me) and suggested I leave it alone or that I kicked her out of the LLC. I did the later (felt good hahaha). Now i had same 'identities'...
Just to be sure, I called the Revenue office again. They said the identity didn't matter, since the LLC was a different identity itself. At this point I escalated it. I ended up talking to 1 of he 5 specialists the state has doing this. He confirmed that if I transferred I would have to pony those $1500. He said he is bored of sending letters to people doing this quitclaim deeds to alert of due payments in doc stamps.
Bottom line (at least for me):
-Know what you do!
-Deal with specialists, in this case real estate attorneys. Lender, realtor, advisor and non-RE attorney were wrong.
-Study ramifications. What happens with the title insurance the moment I transfer the deed?
-make sure the lender is OK to transfer the deed. More than one had the loan called due on sale.
I plan to transfer it in few years when I owe less or when my portfolio grows to the point that risk is non trivial.
@Chris Lucas we actually just went through this, however our lender wouldn't allow the title to be in the LLC name. So the loan is under our name but we did a quitclaim deed to have the title switched to the LLC name.
Based on our experience the title company defers to the mortgage company on what name is used/allowed so as long as the mortgage company is allowing it the title company should be okay with it.
When you get insurance for the property make sure to mention this to your insurance company as they will probably have an Additional Insured listed so both your name and the LLC are listed on the property insurance.
@Chris Lucas I am going through something similar right now and what I have found out definitively is that if you are getting a personal loan (if its 30 yr fixed its prob personal) there is all ways a due at sale clause and the lender can technically call your loan at anytime. However, your lender likely knows they are going to sell your mortgate off in the secondary market before the ink drys on your closing docs and no one will ever care about the title of your loan as long as its kept current. If a problem did arise they would likely just ask you to transfer the title back as opposed to calling the loan. However, there is always that risk.
If you are getting a commercial loan the LLC does not cause issues. However, you still probably have to personally guarantee the loan.
I'm closing on my second property and it all comes back again... Mike Flavin is wright about the commercial loans, no problems there, but it's hard to beat a 30y residential loan with low interest.
@Rick S. that was a good point with the insurance.
Does anybody know if when you quit claim it you lose your title insurance? Do you have to pay to amend it?
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