Real Estate Investor · Youngstown, OH · Member since 2008 · 7 posts · 0 votes
I'm extremely aggrivated by a bonehead mistake and wanted to see if anyone has delt with this before.
Long story short - I bought property in Ohio (great deal) intended for rental before I had my LLC set up. The Wells Fargo mortgage is of course in my personal name. My intent was always to get the property in my name then do a quit claim deed to the LLC. Thinking that since the loan itself will remain in my name I can still move the property over to the LLC for a small fee for the new deed.
Wells Fargo just informed me that I need to have a commercial loan to do this and that they would call for full payment if they found out I moved it.
Clearly, this is my mistake for not adequately researching this and ensuring my bases were covered.
Has anyone encountered this problem before? Is there a creative way around this that doesn't require a ton of money in closing costs and fees to rewrite the loan?
If you are a beginner like me, make sure you know the finer details and clearly explain what you are doing before you do it!
Mark
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
17y
Both Will and Vincent are correct. Here is what I do (I have two properties with mortgages against them with different lenders under my LLC). I send them a payment from my LLC account using my LLC checks. This should constitute a form of notification. If they accept the check and do nothing (...And they will do nothing) you filled your obligation although the law doesn't put the burden on the borrower to notify the lender.
Wentzville/St. Louis, MO · Member since 2008 · 359 posts · 1 vote
18y
No wholesale loan allows for a borrower to transfer title. When the lender finds out they could choose to trigger the "Due on Sale" Clause which means you'd have to payoff the loan.
You could look into doing a Land Trust. From what I understand, lenders must allow you to use a land trust. At first the beneficiary would be you personally. You can change the beneficiary at anytime to another person/entity and this is never recorded so there is no record of it. Only the trust shows on title. I'm not advocating this; only pointing out that many investors use this.
Personally, I feel that you dont really need to have a property in a llc or land trust unless you have a lot of equity and assets that you need to protect. A blanket umbrella policy of $1MM might accomplish what you need until you start building some major equity/assets.
Real Estate Investor · Jersey City, NJ · Member since 2008 · 203 posts · 1 vote
18y
How does what Mark is trying to do, differ from what many other people here do -in terms of quit claiming to his LLC? It looks like this is something has is done often, why is he seemingly unable to do this?
Wentzville/St. Louis, MO · Member since 2008 · 359 posts · 1 vote
18y
Correct, investors do this all the time. However this does not meen that it's ok in the eyes of the lender. Many investors simply choose to take a chance that the lender will never find out or they just dont realize there is such a clause.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
18y
This day in age, lenders are happy to receive timely payments so I have yet to hear of a lender actually enforcing the due on sale clause.
In Mark's situation, he was told that the loan would be called due if he transfers title, but that is coming from an employee at the bank who is paid to tell you that. I am quite sure it would not happen. The last thing a bank wants is another property on their books.
As also mentioned, utilizing a land trust would be the easiest way around this clause and adds additional protection/privacy to your property. Check with Randy Hughes on Land Trusts as he is the pro in that field. You can go to my website and click on the link which will take you directly to his site. He has lots of info on the site explaining how this process works and why you should use it.
Virtual Real Estate Investor · Santa Rosa Beach , FL · Member since 2008 · 76 posts · 77 votes
17y
Mark:
Will is right. I have been involved in thousands of transactions in more than 30 states with virtually every variant you can imagine. I have never once heard of any lender ever calling a note due based on the due on sale clause in the note. Not to say that it couldn't happen, but what are the odds that they are going to call a note on a loan that is peforming?
Slim to none.
It is akin to evicting a tenant who is paying on time. Great! You got the house back (or in this case, the bank got their money back) but you lost profit and now have to go find someone else to do a deal with that may or may not pay on time. A devil you know is better than a devil you don't know.
What you need to do is speak with a good estate planning attorney who can adequately structure the asset protection features you need.
So you understand going forward, loans made to LLCs are called non-recourse loans because the bank has no litigation recourse since you have the veil of protection of the corporate entity. Unless there is fraud on your part, they cannot pierce the corporate veil to come after you personally in the event of a default.
When banks do these loans, they require significantly higher down payments to insure their equity position in the event of a foreclosure. They are not attractive loans for investors.
Don't think that every investment deal you do must be done in the name of the LLC because this simply isn't necessary to accomplish asset protection.
I am sure you can find a good estate planning attorney somewhere on Bigger Pockets, but if not, a good guy to speak with is Roccy DeFrancesco, Esq. of The Wealth Preservation Institute. Don't let his name fool you. He is the "Rainman" of estate planning and asset protection and I believe can show you how to "fund" the LLC with the property through various structures that wouldn't require the transferrance of a recorded title but would provide layer upon layer of asset protection.
Wells Fargo isn't interested in enforcing the DOS they are just looking to soak you on a refi. Offer them a couple of dollars to go along with what is basically an accounting move on your part as their security is in no way lessened. If they don't bite take your business elsewhere. No matter what their response is I would be looking for a better partner on future deals.
Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
17y
Both Will and Vincent are correct. Here is what I do (I have two properties with mortgages against them with different lenders under my LLC). I send them a payment from my LLC account using my LLC checks. This should constitute a form of notification. If they accept the check and do nothing (...And they will do nothing) you filled your obligation although the law doesn't put the burden on the borrower to notify the lender.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
17y
Wow - a thread where everyone is right :) This should be a sticky!
Everyone is right - I know many investors to just transfer it over to the LLC and I know some who do the land trust.
Since Wells is "somewhat" aware of this (no offense but that was your rookie mistake - letting them know) I might not transfer it for a few months - just let it sit - or get it transferred by don't record the deed - that way it is notarized and all but somehow the city just didn't get it recorded?
The chances of Well looking is slim to none but since you have already raised the red flag your closer to slim :)
Virtual Real Estate Investor · Santa Rosa Beach , FL · Member since 2008 · 76 posts · 77 votes
17y
Eddie:
Thank you for the kind words. What Eddie is referring to is the common law argument known as "precedence". In English, this means that if you transfer title to your LLC and the bank accepts nine payments (or any number other than 1) from your LLC before attempting to enforce the due on sale clause, you can argue to the judge under the rule of precedence, that the bank had full knowledge of the transfer AND accepted payments with such knowledge and therefore their motions to enforce the due on sale clause should be dismissed. Keep in mind, I am not an attorney and I am not rendering legal advice, just real world experience.
A judge, seeing X number of payments made by the new LLC that the bank accepted will question the bank's motives after accepting X number of payments.
Virtual Real Estate Investor · Santa Rosa Beach , FL · Member since 2008 · 76 posts · 77 votes
17y
Scott:
as I indicated, in more than 30 years, I have NEVER known anyone to be forced to pay the note because a bank enforced the "due on sale" clause. I have personally executed multiple quit-claim/warranty deeds without incident (as have many of the other Bigger Pockets members).
My point regarding precedence was nothing other than that, from personal real world experience, I have NEVER seen a judge enforce any detainer law where the tenant/buyer/borrower was paying on time.
In this market, a judge would laugh at any bank trying to foreclose on a property where the note was being paid timely, as well they should.
Virtual Real Estate Investor · Santa Rosa Beach , FL · Member since 2008 · 76 posts · 77 votes
17y
I just created a new post to see if anyone has ever experienced an accelerated note because they transferred title and the bank enforced the due in sale clause.
Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes
17y
This thread was very helpful. Thanks. I'm in the same situation. I bought this duplex in 94, I didn't even know what an LLC was back them. My lender is also Wells fargo. Very good gentlemen