Conventional with title in LLC

5 Replies

I've heard so many times to always put your rental properties into an LLC however I'm running into road blocks doing this and I'm curious if I'm the only one.

1) I bought my first property in my own name with conventional financing. After realizing it made sense to transfer title into an LLC, I started investigating and talking to my lender and I was told that since it's a Freddie Mac loan it would trigger a due on sale clause. Obviously not what I want.

2) I'm about to buy my second property and want to put it in an LLC from the beginning. However now I'm being told by the lender that I can't do conventional financing and title the house into an LLC at the same time. The only way is to either ensure I get a Fannie Mae loan and move title to the LLC after closing (but he said something about a "continuation of obligation" clause which I still need to look into) or go with a non-conventional investor loan with an 8%+ interest rate.

Just wondering if I'm missing something here or doing something wrong because it doesn't seem to be so cut and dry on putting a rental property into an LLC. Any help or insight would be greatly appreciated!

A transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property. You will still appear on most LLCs without additional steps being taken, but you can make the land trust appear anonymous with this strategy while getting access to the funding you are looking for.

This isn't legal advice, just my opinion as a real estate investor.

@Scott Smith thanks for the information!! I’ll look into the article your sent. What’s a little bit frustrating to me is that I’ve never heard this process before. Maybe cause I haven’t been paying attention or maybe because it could be construed as legal advice and people shy away from going into these details. I appreciate the response and will do some more digging on this.

Originally posted by @Bradley Hager :

@Scott Smith thanks for the information!! I’ll look into the article your sent. What’s a little bit frustrating to me is that I’ve never heard this process before. Maybe cause I haven’t been paying attention or maybe because it could be construed as legal advice and people shy away from going into these details. I appreciate the response and will do some more digging on this.

Sounds good. It's not common knowledge, but it should be at this point. If you have questions about setting any of it up just let me know, I set these structures up all the time.

Fannie Servicing guide was updated a tad over a year ago, this isn't as big a concern as it once was: https://www.biggerpockets.com/forums/49/topics/610831-oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes?