Can I Restructure to an LLC Owned by Family Trust

Question

I have a former primary residence I want to convert into a rental. We would like to have the property to an LLC for liability purposes and then have the LLC owned by our Family Trust for Estate Planning purposes. However, I have a Fannie Mae owned mortgage and the mortgage servicer has advised that Fannie Mae may not allow that "double layered" ownership. Does anyone have any experience with this? Were you successful in setting up this structure and keeping the loan without triggering a due on sale clause?

Katie Balatbat · Answer

@Andrew Jessup

It's extremely common for the family trust to initially own the real property and then to transfer ownership into an LLC for additional liability protection, with the LLC owned by the family trust.  Transfers of ownership into the family trust are usually protected (see Garn St-Germain Act), but transfers into an LLC may run afoul of the due-on-sale clause that some investors will choose to obtain consent from the lender prior to the transfer.  Most family trusts, especially in CA, provide little or no liability protection (see self-settled trust rules).  I've heard more lenders having issues lately with this "dual layer", even though the standard family trust and its individual settlors are usually the same for liability, credit, and tax purposes.  Might need to just get to a more informed person at the lender to ask these questions, or get your attorney involved.  Of course, with all things, the situation varies and no one on these forums has seen your underlying documents and the actual terms, and thus, you should consult with legal counsel specific to your situation.  Good luck.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Joe Homs · Answer

@Andrew Jessup I would suggest going into a land trust first that is owned by the LLC (not in California) and then that owned by your living trust. Assest and liability protection. Look at some YouTube videos by Anderson Business Advisors.

I am not an attorney, CPA, only a long-time investor. Please check with your professionals.

Good Investing...

I am not an attorney, CPA, only a long-time investor.  Please check with your professionals.

Good Investing...

Tony Savage · Answer

I have had to take my rentals out of my LLC's to acquire a second on one rental and a HELOC on another.  I make the payments for about 8 to 10 months then I have my attorney put the rentals back into my LLC's which are owned by my trust.  I will be putting my rental that I got a HELOC on back into my LLC in a couple of months.

The lenders are not in the business of foreclosing on properties.  They just want that monthly payment.

Good Luck!

Ashish Acharya · Answer

@Andrew Jessup Transferring your property to an LLC owned by a Family Trust could trigger the due-on-sale clause on your Fannie Mae mortgage, as they typically allow transfers only to revocable living trusts without issue. So may be trust can own directly.

Can I Restructure to an LLC Owned by Family Trust

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