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Wesley Mullen
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Wesley Mullen's profile image
Wesley Mullen
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Wesley Mullen
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Moving Existing Rentals to LLC

Wesley Mullen
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Posted Nov 30 2023, 16:16

Hi everyone, 

I've been MIA from BP for a while, but need help/advice on the steps to move our existing rentals to an LLC. Can someone provide a step by step process that we can follow (or point me to an existing outline) or do we need to hire a real estate attorney to complete this process? If an attorney is necessary, are there any good recommendations in the Norman, OK area?

Background:
I am a 50/50 partner with my brother/sister-in-law. We have two rental properties that are on mortgages and are managed by a PM. I'm aware that everyone warns about the 'due on clause' that people warn about when attempting to move rentals under an LLC. Has anyone ran into these issues in Central Oklahoma? Given we are partners, it will be easier to manage the properties under an LLC.

Is there anything else we should be aware of when working through this process? 

Thanks in advance. 
-Wes

Erin Church's profile image
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Erin Church's profile image
  • Real Estate Agent
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Erin Church
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Erin Church
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  • North Augusta, SC
Replied Nov 30 2023, 16:41

I wanted to mention that if you do a quit claim deed, that you'll likely nullify your title insurance if you paid for it. Just a tidbit to keep in mind as you're talking with folks about the process. 

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Peter Walther's profile image
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Peter Walther
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Replied Dec 1 2023, 06:37
Quote from @Erin Church:

I wanted to mention that if you do a quit claim deed, that you'll likely nullify your title insurance if you paid for it. Just a tidbit to keep in mind as you're talking with folks about the process. 


If the grantee LLC meets the definition of "Insured" under the policy, it may be covered. I would ask the issuing office for an endorsement adding the LLC as a named insured to confirm that it does.

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Erin Church's profile image
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Erin Church's profile image
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Erin Church
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Erin Church
  • Real Estate Agent
  • North Augusta, SC
Replied Dec 2 2023, 06:57
Quote from @Peter Walther:
Quote from @Erin Church:

I wanted to mention that if you do a quit claim deed, that you'll likely nullify your title insurance if you paid for it. Just a tidbit to keep in mind as you're talking with folks about the process. 


If the grantee LLC meets the definition of "Insured" under the policy, it may be covered. I would ask the issuing office for an endorsement adding the LLC as a named insured to confirm that it does.


Hey Peter - My experience has been that when going to a warranty deed, the title insurance stays as long as the LLC is owned by exactly the same people on title when the title insurance was issued. When doing a quit claim deed, the policy has not stayed in tact since the quit claim deed offers no warranty of title. I don't know if this varies by state or other circumstances though. :)

Peter Walther's profile image
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Peter Walther's profile image
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Peter Walther
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Replied Dec 25 2023, 08:41
Quote from @Erin Church:
Quote from @Peter Walther:
Quote from @Erin Church:

I wanted to mention that if you do a quit claim deed, that you'll likely nullify your title insurance if you paid for it. Just a tidbit to keep in mind as you're talking with folks about the process. 


If the grantee LLC meets the definition of "Insured" under the policy, it may be covered. I would ask the issuing office for an endorsement adding the LLC as a named insured to confirm that it does.


Hey Peter - My experience has been that when going to a warranty deed, the title insurance stays as long as the LLC is owned by exactly the same people on title when the title insurance was issued. When doing a quit claim deed, the policy has not stayed in tact since the quit claim deed offers no warranty of title. I don't know if this varies by state or other circumstances though. :)


The terms of the policy controls whether the Grantee is an insured. If as you write, the Grantee is wholly owned by the named insured/Grantor then coverage probably continues. I have seen though where a husband and wife are the named insured, they convey to an LLC owned by the husband and son and are thne surprised to find the LLC may not meet the definition of Insured.

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Wesley Mullen
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Wesley Mullen's profile image
Wesley Mullen
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Wesley Mullen
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Wesley Mullen
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Replied Jan 23 2024, 09:50

@Peter Walther @Erin Church

I apologize it's take so long to respond. So it seems we would need to decide between a Quit Claim Deed and a Special Warranty Deed in order to move the rentals under the LLC? It seems like the Special Warranty deed would be preferred, but are we required to designate a transaction figure? I'm assuming there is a minimum requirement and we can't transact for $0.

I did reach out to the title company for assistance, but they advised they could only assist if we wanted to transact/sell the property to the LLC. Is this the preferred route with another re-close? Otherwise they advised we needed to speak to an attorney (assuming for assistance for a Quit Claim deed).

Erin Church's profile image
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Erin Church's profile image
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Erin Church
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Replied Jan 23 2024, 10:58

@Wesley Mullen - I would talk with an attorney to find out if doing a quit claim deed will nullify your title insurance. (I'd suggest talking with the attorney who closed it and issued the title insurance to begin with.) :)

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Wesley Mullen
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Wesley Mullen's profile image
Wesley Mullen
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Wesley Mullen
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Wesley Mullen
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Replied Jan 23 2024, 18:22

@Erin Church Thanks for your insight - we will likely go that route and see what we can find out. We didn't have any attorneys with our closing, so we'll have to locate someone (who hopefully has experience with investors!)

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Peter Walther
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Replied Jan 25 2024, 07:05

The form of the conveyance, WD vs QCD, has no effect on whether the policy coverage inures to the benefit of the grantee.  Only the relationship between the grantor and grantee.

I would ask the title agent if they would issue an endorsement to the existing policy changing the name of the insured to the LLC.

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Wesley Mullen's profile image
Wesley Mullen
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Wesley Mullen
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Wesley Mullen
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Replied Jan 25 2024, 18:55

@Peter Walther I will keep this in mind. When I initially reached out to the title company, they essentially advised me I needed to speak to an attorney for assistance, so this is the route we are currently going. 

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Peter Walther
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Replied Jan 26 2024, 14:44
Quote from @Wesley Mullen:

@Peter Walther I will keep this in mind. When I initially reached out to the title company, they essentially advised me I needed to speak to an attorney for assistance, so this is the route we are currently going. 


I suspect that's true as far as how to accomplish your objectives, however, the title agent should be able to tell you, if you do as the attorney suggests, can you get an endorsement to the policy rather than buying a new policy.