Quitclaim to LLC

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Quitclaim to LLC

GR Pachmayr
Investor · Avon, IN · Member since 2016 · 10 posts · 2 votes

I am getting close to closing a deal on a duplex. When I approached the lender I am using, I indicated that I wanted the loan through my LLC, he said that I could just quitclaim it to the LLC after it closed and the mortgage was recorded. I asked him about the due on sale clause, and he said that preventing such a transfer wasn't the purpose of the clause. My instinct tells me not to try to quitclaim it, despite his statement. So, would you quitclaim it to the LLC, or keep it in your personal name? If I do quitclaim it, and the mortgage company calls the loan, will I have an opportunity to quitclaim it back to my name?

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y

Hope your attorney also advised you that your title insurance and hazard insurance are also no longer valid more than likely.  

@GR -will this be an investment duplex or a house hack you will occupy? Have other properties? Worth multiple millions? Are ya famous? Why the need for the LLC I wonder?

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  • Isaac Blocher
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y

    I have talked to my attorney about this very same thing. He told me that know bank would want to recall a loan that is in good standing. My attorney advised me to Quitclaim deed my property over into my LLC. However, I do recommend you talk with an attorney about your specific property and LLC. I hope this helps.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    Hope your attorney also advised you that your title insurance and hazard insurance are also no longer valid more than likely.  

    @GR -will this be an investment duplex or a house hack you will occupy? Have other properties? Worth multiple millions? Are ya famous? Why the need for the LLC I wonder?

    4Reply
  • GR Pachmayr
    OP
    Investor · Avon, IN · Member since 2016 · 10 posts · 2 votes
    10y

    @Steve Vaughan, this will be my second investment property, definitely not rich and famous. I'd like to use the LLC to protect the assets I do have, especially as I grow. However, in this instance I'm leaning towards keeping it in my name.

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  • GR Pachmayr
    OP
    Investor · Avon, IN · Member since 2016 · 10 posts · 2 votes
    10y

    Follow up question: if I do decide to keep the deal in my name, can I still use the LLC on my lease and other forms and can the tenants make the checks out to the LLC, or do I have to use my name? Thanks!

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  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @GR Pachmayr, my concern is, when it comes to SELLING the property, how difficult/expensive is it for the end-Buyer to back-track the cleanness-of-title once they learn that the current status has it as a Quit Claim Deed? (That is also my concern when it comes to ANY property being offered for sale with Quit Claim Deed ONLY)! I always say: Whyyyyyyyyy????...

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y

    You can use an LLC as the property manager, and have LLC execute documents in this capacity

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y
    Originally posted by @Steve Vaughan:

    Hope your attorney also advised you that your title insurance and hazard insurance are also no longer valid more than likely.  

    @GR -will this be an investment duplex or a house hack you will occupy? Have other properties? Worth multiple millions? Are ya famous? Why the need for the LLC I wonder?

    Actually that is incorrect. Title insurance stays in force for the entity listed on the title policy. Should one quit claim to ones LLC, and a claim arise, the LLC would claim against the named entity in the title policy, and the named entity (or person) would claim against the policy.

    In order for insurance to be in effect, you must have an insurable interest. As owner of the LLC, there is an insurable interest. You can also simply add the LLC as additional insured.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
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  • Isaac Blocher
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y

    Thank you @Don Konipol I did put the property into my LLC and our management company sent us checks in our LLC name. We have sense paid the property off and all is well. The bank was happy to get their money every month. They never called in the note.

    However, now looking back. I would not have created the LLC because it caused me a lot of hassle and extra worry.

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  • Account Closed
    Investor · LOUISVILLE, KY · Member since 2013 · 299 posts · 137 votes
    10y

    My mortgage lender told me the same thing. I took him at his word and quitclaimed my property into my LLC. I have had no issues and no interruptions. All was ok.

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  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    10y
    I would not. Good luck.
    0Reply
  • Jeff Plair
    Evans, GA · Member since 2014 · 124 posts · 21 votes
    10y
    I would quit claim to the business name. That would help you develop a good track record for your business. But you would also need to transfer insurance into the business name as well.
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  • John Clark
    Investor · Pinckney, MI · Member since 2015 · 95 posts · 24 votes
    10y

    Bigger Pockets is awesome. I was also wondering what options I have for one of my SFH with a mortgage. I wanted to purchase the property with the LLC, but the bank said no, and that it would need to be a commercial loan.

    I like to idea and simplicity of the Quit Claims option.  But I will consult with a RE attorney before making a move.  Now I just need to find one...

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  • GR Pachmayr
    OP
    Investor · Avon, IN · Member since 2016 · 10 posts · 2 votes
    10y

    Thanks for all the feedback.  Talked with a lawyer, and he said that he has never heard of a bank calling a loan in a situation like this, so long as they are getting paid, but that technically they could.  I'm going to keep in my name for the time being and try to get written consent from the bank for the quitclaim.  

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  • Scott Hildebrand
    Professional · Sammamish, WA · Member since 2016 · 34 posts · 15 votes
    10y

    True story. So long as the bank is getting paid, they don't care.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @GR Pachmayr:

      I'm going to keep in my name for the time being and try to get written consent from the bank for the quitclaim.  

     I doubt that will happen. This is definitely an "ask for forgiveness, not permission" scenario. 

    If you become a naughty borrower, such as if you don't pay your property taxes or maintain homeowner's insurance, they will still want that due on sale clause available as their "icing on the cake" when/if they go after you.

    Everything in lending is about risk. The lender is less at risk when you quitclaim, because of that due on sale clause. If they give you permission to do it, or if you do it after asking and being told no, they are at MORE risk and getting absolutely nothing out of it.

    This is not legal advice, talk to your lawyer, etc.

    1Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y
    Scott Hildebrand GR Pachmayr There was a thread on here a few months back. The guy DID have his note called in for exactly that putting his property in an LLC. I also recall some body else on the thread mentioning as interest rates went up it was more likely to occur. The reason being that this would be a way to force a refinance at a higher interest rate on a performing note. When you trip the due on sale clause the bank can accelerate the note. It becomes due in full., the only option being pay the note or a refinance. I don't know if there's any truth to the bank ACTUALLY trying to do that, but I do know anything can and will happen. I have asked 2 attorneys and received 1 yes and 1 no. I then asked my lenders. All 3 said it was not their rule but the underwriters rule. (FHA or Fannie or whomever). All wrote a very grey response that indicated they while they could not give permission they didn't watch it either. Not wanting to refinance 4 notes I did not do it. As a side note I did get permission from my lender to put my residence in my TRUST not my LLC. RR
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  • GR Pachmayr
    OP
    Investor · Avon, IN · Member since 2016 · 10 posts · 2 votes
    10y

    Ralph R. I assume you asked your lenders in writing?  I'm wondering what information you included when you asked. 

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y
    Originally posted by @Ralph R.:

     I also recall some body else on the thread mentioning as interest rates went up it was more likely to occur. The reason being that this would be a way to force a refinance at a higher interest rate on a performing note. When you trip the due on sale clause the bank can accelerate the note. It becomes due in full., the only option being pay the note or a refinance. 

     That was someone not a lender speculating that what you described could, in theory, happen.

    My response was that if a firm started doing that, all of the loan originators would instantly mutiny, and it would kill the company. It's unlikely that any company would pursue this strategy, because it would be like shooting one's own self in the head and calling it "self defense."

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  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @GR Pachmayr

    Of course I asked all three Lenders in Writing. I did so by E-mail, on their respective web sites. I don't remember the exact wording but I know I used the account numbers, property descriptions, and reasons for wanting the properties placed in the LLC. Again its not the lenders rule, but Fannie's rule. here's the link to the thread. if you read the OP you will see the bank caught the transfer when they checked the insurance. Also note some of the members posting seemed to think wells fargo was doing the same thing. In fact the OP even posted a copy of the letter from the bank. check it out!!

    https://www.biggerpockets.com/forums/311/topics/18...

    The people who participated on this thread are some of the most experienced and successful  people on BP.  The thread is five pages long and discusses this topic at great length. 

    I briefly reviewed this thread and saw no post by @Chris Mason what page was it on Chris? In fact several of the more successful REI's who posted on that thread seemed to think it was a very real threat. I saw no mention of self defense?

    RR  

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    10y

    Must have been a different thread @Ralph R. :) I feel like it's one of those exact same threads/questions we have every three weeks, they blur together a bit.

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