Options when lender won't allow deed to LLC

3 Replies

A few months ago I purchased a building with 4 townhouses in it in Texas. I created an LLC. I asked to use the LLC name for the title, but they told me to do it after closing. The loan was sold to another company. I contacted them, and they told me explicitly that they would enforce the "due on sale" clause if I did a deed to put the title in the company's name.

What are my options for protecting myself?

Originally posted by @Timothy Gerdes :

A few months ago I purchased a building with 4 townhouses in it in Texas. I created an LLC. I asked to use the LLC name for the title, but they told me to do it after closing. The loan was sold to another company. I contacted them, and they told me explicitly that they would enforce the "due on sale" clause if I did a deed to put the title in the company's name.

What are my options for protecting myself?

 Timothy That's correct you should have done this in escrow while the purchase was being done called vesting not after the close of the deal. A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance.
A transfer to an LLC or other forms of business could still trigger a due-on-sale clause, even if you continue to own the property indirectly through our ownership of 100 percent of the business after the transfer. Lenders have no incentive to approve transfers and often will simply not respond when asked for permission. But most lenders do not actively patrol the land records to look for transfers that might violate a due-on-sale clause. For these reasons, many property owners feel comfortable making the transfer without obtaining lender permission. Although there is a risk that the loan could be called, these owners feel that the risk is too remote to worry about. More conservative owners will be reluctant to make any transfer that is not authorized without prior lender approval.



@TimothyGerdes We are facing the same issues. What we've done is shopped around and found a lender who would refinance into our LLC. This both allows asset protection, and allow us to pull out equity.

@Timothy Gerdes

You can transfer the property with a warranty deed to a land trust where you are still the beneficiary. The Garn St Germain act will void any due on sale clause.

Later, quietly assign the beneficial interest to your LLC. This assignment not being recorded won't create any problem.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here