LLC on title but personal mortgage?

Question

Hello!

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!

My questions:

• 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?

Thanks!

Chris

Account Closed · Answer

@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.

Rick S. · Answer

@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 K. · Answer

@Chris Lucas:

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.

Jeff Greenberg · Answer

@Chris Lucas

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.

Chris Lucas · Answer

Ori,

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.

Chris

Ori Skloot · Answer

Hey Chris,

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.