Mortgage company wants to initiate Due on Sale clause

10 Replies

Closed on 2nd rental property in July. I have successfully setup LLC and am trying to transfer property into LLC. When I initially spoke with customer service rep at RoundPoint Mortgage(my original mortgage was sold to them) I was told they do not execute Due On Sale. My attorney was told I needed to send letter to Mortgage company stating what I wanted to do and they would pass letter on to lender for approval. I received notification today that if I transfer to LLC Due on Sale will be initiated so now I'm not sure what options I have? Find lender who will let refinance under LLC? Look for possible HELOC to secure remaining funds to payoff loan and then transfer to LLC?

Any advice would be greatly appreciated.

Kim

why do you want it in an llc?  Do some searchs on here, tons of people have rentals in personal name.  If someone is going to sue you they are going to sue you personally, llc, and everyone involved.

Hi Tim, I was advised by my CPA and attorney to setup LLC for my property. I did read quite a few posts regarding LLCs before I took the step and had many advisers direct me in that direction.

Originally posted by @Tim Johnson :

why do you want it in an llc?  Do some searchs on here, tons of people have rentals in personal name.  If someone is going to sue you they are going to sue you personally, llc, and everyone involved.

 What Tim said! 

I have been doing this real estate thing for 36 years without an LLC. I don't get why new investor on BP think they need one. I guess it's like everytime a new IPHONE comes out because everyone else is getting one I have to have one to. The reality is if or when you get sued you will be named along with any partners in your LLC. Get a umbrella policy that covers your rentals and sleep good at night.

I have been sued and had everything in an Llc and the end of the day it didn’t do a single thing.  They sued me personally and Llc.  They didn’t win because it was a bs claim but still they went after me personally and all my stuff is 100 percent separate.  If they are going to sue they sue everyone

@Kim Martin is the mortgage currently owned by Fannie Mae? Did Fannie Mae purchase the loan after 6/1/2016? Do you have majority ownership interest in the LLC? If the answer to all these questions is yes, then you may want to take a look at the Fannie Mae guidelines because you may have a leg to stand on.

Click this link to access  Fannie Mae Selling Guide 
 Page 292 of the document ant page 309 of the PDF discusses allowable exemptions due to the type of transfer.  You may want to ask your attorney if he is familiar. 

Good Luck!










Originally posted by @Kim Martin :

Closed on 2nd rental property in July. I have successfully setup LLC and am trying to transfer property into LLC. When I initially spoke with customer service rep at RoundPoint Mortgage(my original mortgage was sold to them) I was told they do not execute Due On Sale. My attorney was told I needed to send letter to Mortgage company stating what I wanted to do and they would pass letter on to lender for approval. I received notification today that if I transfer to LLC Due on Sale will be initiated so now I'm not sure what options I have? Find lender who will let refinance under LLC? Look for possible HELOC to secure remaining funds to payoff loan and then transfer to LLC?

Any advice would be greatly appreciated.

Kim

1. With 2 properties you don't need an LLC. As has been stated already, if you get sued they will sue you and your LLC.

2. You are unlikely to follow all of the rules necessary for protection under an LLC and that means the LLC will have no value to you.

3. You are not required to notify the mortgage company that you are transferring to an LLC.

4. If you transfer to an LLC and the the mortgage company sends you a letter, you can simply transfer it back to your name with no penalty.

5. In the world of real estate investing this is a "small potatoes" issue, easily cured if need be and likely of no value to you anyway until you have about $100,000 in equity that you want to protect.

6. Read the rules for maintaining a "Properly" set up LLC before you spend the money on one. If you are the kind that polishes the bolts under the mainframe of your car for "maintenance" and to keep within the warranty of the vehicle, you are a good candidate for having an LLC. If you're the kind who never thinks about checking the air pressure in your tires, then any good attorney is going to tear your LLC apart in court anyway.

7. That being said, it is of value to have LLCs for checking account purposes and for organizing lots of properties and segregating types of properties for IRS purposes. But, since this is your 2nd rental, you don't (yet) have lots of properties and this isn't an issue.