Transfer of Title to LLC

[Seth White]

My parents titled a triplex to me in 2013 via quitclaim deed. The triplex was initially purchased as a single family home and converted to a triplex. My insurance broker is warning me that if I go to a landlord policy then the due on sale clause might be triggered due to the fact that it is now a non-owner occupied triplex. My lawyer warns me that if I transfer title to an LLC then the due on sale clause might also be triggered. I am concerned as I am not on the insurance policy as I'm not on the mortgage, and we have a homeowners policy only on the building. I can't seem to "double insure" the building by taking out an additional policy for me. My plan is to transfer title to LLC via quitclaim but the LLC won't be on the home's insurance. I know I wont' have loss coverage but at least I will have liability protection while I figure out what to do.

My primary question is if I do this, and do not change the insurance policy, will my lender know? Do they run title searches on existing properties? The mortgage terms are extremely favorable so I don't want to refinance, but I'm also looking into that. 

[Andrew Postell]

@Seth White a lot going on here so I'll try to address this in sections:

• Insurance - The insurance policy should absolutely have your name on it. If your parents still have an insurance policy that should be cancelled and a new policy with your name on it should ABSOLUTELY be in place. AT MINIMUM, your name should be on their insurance policy. If you do switch the deed to your LLC, the insurance policy needs to have the LLC name on it. The "mortgagee" clause still needs to list the company who holds the mortgage. If your agent, or their agent, is saying that he/she can't do this then find a new agent. This is a HUGE liability issue and this needs to be addressed right away.
• "Due on Sale" Clause - this clause drives me crazy.  Not the clause itself but the "doom and gloom" people talk about with this clause.  This clause helps the bank foreclose on you if you stop paying.  Banks lose ENORMOUS amounts of money when they foreclose.  Lawyers, title companies, man hours internally, etc.  Banks make ENORMOUS amounts of money if you pay on time.  Continue to pay on time and this clause will not be enacted. If you have more questions on this clause let me know but you should be able to change the deed without repercussion - just like the thousand and thousand of other investors that change the deed without repercussions - as long as you pay that mortgage on time. 

Thanks so much!