Refinancing personal mortgage to LLC name

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Refinancing personal mortgage to LLC name

Angelo Maiuri
Member since 2018 · 1 post · 0 votes

We recently formed an LLC and transferred the titles of our two investment properties to the LLC. Also we set up separate bank account, credit card and insurance to keep finances separate as we were told to do.

Just recently we were applying for a mortgage on another property and our bank told us that the mortgages we had on the existing investment properties, were in our name and the transfer of ownership to the LLC put us in default of our loan since it was held in our personal names.

They are asking us to refinance under the LLC name with higher interest rate, high closing cost and prepayment penalties.

We are getting conflict information when asking our attorney, accountant and bank. Some say we are in default some say nothing is wrong and that there are many loans this way.

Has anyone experienced this situation and resolved it and how? any info is appreciated

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Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
7y

One way of transfering properties to your LLC is to use a land trust.

You create a landtrust where you are the beneficiary.

You then do a warranty deed of the property to the land trust. Most state won't charge you transfer tax as you are still the benefiary and there is no change of control, you may have still to pay a minimum stamp tax just for the recording of the deed.

The Garn St Germain act will also protect you against the due on sale clause accelerating your mortgage.

Later, you assign the beneficial interest of the land trust to your LLC. As this assignement is private and not recorded it will not trigger anything. Some state may require some transfer fee if you change the beneficiary, but if you are still the ultimate beneficiary of your LLC, you may argue that it hasn't changed.

If down the road, your bank requires you to proove that the beneficiary has not changed, you can always reassign the beneficial interest of the land trust back to you for that process if needed.

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  • Gwyeth Smith
    Rental Property Investor · Huntington, NY · Member since 2016 · 102 posts · 74 votes
    7y

    Usually the lender will be able to call the loan if they see non-compliance. I've seen some in these forums say that you can transfer to an LLC without issue and others say that their loan was called. I had two properties under my name and and refinanced them into my LLC. My biggest pain point in that transaction was that I had to pay the transfer tax again which was 4% of the value.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    If they are Fannie loans you should be okay.....Fannie recently began allowing this, at least for an individual and a single member llc.  If you are in violation of the due on sale clause, yes they can call it.

    How were the properties originally titled, how many of you were individually on title verses how many are members in the llc?

    @Chris Mason ??

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    If the bank you are applying to for your new mortgage is saying you need to refinance they are correct since they make the rules. If it is not the same bank you need to find out from the bank that is holding the mortgages, they will decide.

    Many people that move properties to a LLC and do not get them called get away with it because their bank does not catch the move.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Wayne Brooks:

    If they are Fannie loans you should be okay.....Fannie recently began allowing this, at least for an individual and a single member llc.  If you are in violation of the due on sale clause, yes they can call it.

    How were the properties originally titled, how many of you were individually on title verses how many are members in the llc?

    @Chris Mason ??

     That's what Fannie says, but nothing restricts banks from having overlays. I don't think they can require OP to refinance it, but they also don't have to give OP his next mortgage if they don't want.

    1Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    7y

    One way of transfering properties to your LLC is to use a land trust.

    You create a landtrust where you are the beneficiary.

    You then do a warranty deed of the property to the land trust. Most state won't charge you transfer tax as you are still the benefiary and there is no change of control, you may have still to pay a minimum stamp tax just for the recording of the deed.

    The Garn St Germain act will also protect you against the due on sale clause accelerating your mortgage.

    Later, you assign the beneficial interest of the land trust to your LLC. As this assignement is private and not recorded it will not trigger anything. Some state may require some transfer fee if you change the beneficiary, but if you are still the ultimate beneficiary of your LLC, you may argue that it hasn't changed.

    If down the road, your bank requires you to proove that the beneficiary has not changed, you can always reassign the beneficial interest of the land trust back to you for that process if needed.

    2Reply
  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    7y

    @Angelo Maiuri I agree with @Chris Mason this sounds like a lender overlay.  If your 2 other properties are not in default by the banks who have those notes then I would find a new lender for your new purchase.

    C2 Financial
    WebsiteView Page
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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    Go find a new bank. I did the exact same thing that you did with 3 properties and have never had a bank question it. 

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    Mike S., not exactly....Garn St Germain protects transfer to trust “for estate planning purposes”, not simply transferring to a land trust.....people do this, to a land “trust” Hoping the bank thinks it’s a protected transfer, but it is not. 

    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    7y
    Originally posted by @Wayne Brooks:

    Mike S., not exactly....Garn St Germain protects transfer to trust “for estate planning purposes”, not simply transferring to a land trust.....people do this, to a land “trust” Hoping the bank thinks it’s a protected transfer, but it is not. 

    If you transfer your property (limited to residential 1 to 4 units) to a land trust where you are still the beneficiary, the Garn-St Germain act prohibits the exercise of the due on sale clause in regard to “A transfer into an inter-vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”

    Even if the case initially was brought due to an estate planning issue, there is no mention in the act about the need to be for estate planning, only that you are still the beneficiary. That is why it is extremely important that you are the initial beneficiary of the land trust.

    Later when you assign that beneficial interest to the LLC, it will be a private, non recorded act.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    7y
    Originally posted by @Mike S.:
    Originally posted by @Wayne Brooks:

    Mike S., not exactly....Garn St Germain protects transfer to trust “for estate planning purposes”, not simply transferring to a land trust.....people do this, to a land “trust” Hoping the bank thinks it’s a protected transfer, but it is not. 

    If you transfer your property (limited to residential 1 to 4 units) to a land trust where you are still the beneficiary, the Garn-St Germain act prohibits the exercise of the due on sale clause in regard to “A transfer into an inter-vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.”

    Even if the case initially was brought due to an estate planning issue, there is no mention in the act about the need to be for estate planning, only that you are still the beneficiary. That is why it is extremely important that you are the initial beneficiary of the land trust.

    Later when you assign that beneficial interest to the LLC, it will be a private, non recorded act.

     Fannie Mae is revocable living trust friendly, you can even close on a purchase mortgage in the name of the trust. 

    0Reply
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