Changed title from LLC to my name for refi. Can i change it back?

Question

Hello All,

This was my experience when doing a refinance. I purchased a duplex in OH a few years ago with cash. When I refinanced it the Bank wanted me to switch the title out of the LLC and into my personal name. I did that and was able to refinance. A good question came up during the meetup with the David Greene Team last month on changing the title back to the LLC instead of your name. The question was "Does the bank force a due on sale clause (pay entire balance of mortgage)"when trying to change the title back to LLC?" That question wasn't answered but I'd like to know what your experiences are/were. I feel more comfortable with the LLC on the title to mitigate my risk/liability.

Thank you!

Benjamin Piecenski · Answer

@Bonifacio Capuyan Commercial loans are typically put into an LLC's name.  You do have a higher rate, but you can take title directly into your LLC.  I don't do commercial loans,  but I'd be glad to answer any more questions you have!

Weston Couch · Answer

@Bonifacio Capuyan I can't give you legal advice here, but from my experience,  landlords actually would not be liable for damages in a lawsuit from a tenant if their rental was held by an llc. What they(the tenants) could access through a lawsuit would generally be limited to the assets of that LLC(the rental property itself). Of course this could still be a big loss, but it would be a lot better than losing the house you live in too, or or other investment properties as well.

Connect with me if you'd like to know more, I can give you a lot of resources on the subject.

Bonifacio Capuyan · Answer

Thanks @Weston Couch for the info. I'm going to research land trusts. I assume I am still personally liable for any lawsuits brought up by the tenants as opposed to having my LLC shield me from personal liability.

Bonifacio Capuyan · Answer

Thank you @Benjamin Piecenski. Can I borrow commercial loans and have the same problem? Do commercial loans prefer to have a persons name on the loan?

Benjamin Piecenski · Answer

Hi @Bonifacio Capuyan!  This is kind of a sticky subject.  The bank holds the right to call the note due if the title is switched back to an LLC.  However, if you are paying on time, the chances of this happening are not great.  I have never seen a note called due, and my Father with 30+ years experience in the industry has never either.  Notes that do get called due are more than likely delinquent, and the bank discovers the title change when looking into the delinquency.  This is very much an "at your own risk" situation.

Also, I might add that a strong umbrella liability insurance policy will go a lot farther in protecting you than an LLC.

Joe Splitrock · Answer

@Bonifacio Capuyan the bank already answered this question when they required the title to be in your personal loan as a condition of financing. So your true question is, "will I get caught and what are the consequences". Nobody can answer that for certain.

You are only liable in a lawsuit if it is proven that your negligence caused damages and you only pay if your insurance doesn't. The best protection is risk avoidance and a high dollar liability policy.

Just a caution on the cash out refinance, make sure you are following IRS tracing rules. The interest can only be deducted if the funds are used on real estate. Also they are claimed against the property where the funds are used. So you don't claim the interest on the property you refinanced, you claim it on the property you purchased. Tracing means tracking how the funds are used. If some portion of the money is used for personal expenses, it is not deductible. For example, you cash out $100,000 and use $10,000 to go on a vacation. You use $90,000 for down payment on another property. In this case only 90% of the interest is deductible.

Tyler J Askin · Answer

Stealing this from a other thread.  It's additional food for thought.

https://www.biggerpockets.com/forums/49/topics/610831-oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes

Weston Couch · Answer

@Bonifacio Capuyan Hello, a transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property, your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.

Please feel free to connect with me if you’d like to know more.

Changed title from LLC to my name for refi. Can i change it back?

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