Need to do a quit claim will this affect my hard money loan?

Question

I had to close in my s-corp due to time constraints on my time to close with the seller for this flip I'm doing.  I need to do a quit claim into an LLC, but I'm curious how this will impact my hard money loan if at all since I closed on that in my S-corp name.  Is it as simple as just doing a quit claim deed for title or will the entity change trigger something with my loan?

Doug Smith · Answer

I would suggest running that by the lender before you do it. One reason that due on sale clauses exist is that lenders need to "perfect" the lien on the property. Moving it from one entity to another doesn't necessarily weaken their lien position, but it can cloud things a bit. You'll likely have a due on sale clause that can be called, but I'm sure they can work around it if you don't hide it from them. I would ask why you have to quit claim the deed right away? Even if the S-Corp has to dissolve, can it wait a few months until the loan matures and you have to pay it off or refinance it anyway? Definitely have a discussion with the lender instead of trying to blow it by them. Remember, Nixon got in trouble more for the cover up than the crime itself (not saying quit claiming is a crime...I was just using the analogy to make a point). Good luck to you!

Basit Siddiqi · Answer

As others have mentioned, you may be better off keeping it in the S-Corp of making the election for the other LLC to be taxed as an S-Corp.

Chris Seveney · Answer

As ned mentions it depends, but most likely they would not have an issue with it, where they may have the issue is you closed the S corp. If there is a personal guarantee its less worrisome for the lender but a lot of moving parts that cannot be answered.

Ned Carey · Answer

@Steve Meyers I think you need a new CPA.

Fliping is earned income and subject to FICA tax (basically SS and Nedicare). However if you have an S Corp some of the income can come as a wage in which FICA is taken out and some of your income can come as a dividend and that is NOT subject to FICA. For self emplyed peole FICA is about 14% so that can be a major tax salvings.

Shame on your CPA for not suggesting that

Note that there may be lega reasons to separate your flipping from your agent activities but that advice should come from a Lawyer NOT a CPA

Steve Meyers · Answer

@Ned Carey Yea I'm waiting to find that out.  My CPA advised me to quit claim into an LLC since my S Corp is primarily for my real estate transactions as an agent.

Ned Carey · Answer

@Steve Meyers It depends on what your loan documents say. No one here can answer that without specifically knowing what the loan documents say.

The bigger question is WHY? It can be tax advantageous to flip in an S Corp.