Updated over 7 years ago on . Most recent reply
Refinancing personal mortgage to LLC name
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
Most Popular Reply
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.