Quit Claim Deed / Finding Lender - Please Help!

12 Replies

Hello BP,

Currently house-hacking a duplex purchased at the end of May using private money but am running into the road block of finding a bank in my area that is willing to work with a Quit Claim Deed. Obviously I am wanting to secure long-term financing while rates are so low and get the property into an LLC for the added protection.

Most banks that I have spoken with seem to understand the concept and do not seem opposed but aren't willing to provide any form of written guarantee that once the Quit Claim Deed takes place they won't call the note due.

Would love suggestions, advice, connections if at all possible!


I think the problem might be with the conveyance, not the type of deed that's used. Most loans have a due on sale provision that may be triggered when you convey the property into the LLC though I believe the number of times lenders call the loan if its performing is low.

Primary residences are different than typical rentals for 'asset protection'.

Your state may have homestead protections you may forego and/or you may not qualify for cap gain tax exclusion at sale by not owning as a natural person.

Private money terms are likely your biggest asset risk, not fear of lawsuits. 

I think more information is needed. If I'm understanding correctly, it's currently deeded in your personal name and you want to refinance it while transferring the deed to an LLC. Is this correct.

Otherwise you would not be transferring title and it would just be a straight refinance, in which case there would be no quit claim deed necessary.

@Mack Owens check this out 

“SERVICING: D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (11/08/2017)

This topic contains information on allowable exemptions due to the type of transfer.

Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:
~ the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

Note: The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person prior to any subsequent refinance application in order to meet Fannie Mae's Selling Guide underwriting requirements."

Originally posted by @Derek Dombeck :

I think more information is needed. If I'm understanding correctly, it's currently deeded in your personal name and you want to refinance it while transferring the deed to an LLC. Is this correct.

Otherwise you would not be transferring title and it would just be a straight refinance, in which case there would be no quit claim deed necessary.

Derek, thank you for the response. 

Yes, the property is currently deeded in my personal name and I am wanting to refinance (using a traditional mortgage with hopes of securing 30-year mortgage at low interest rate) while transferring the deed to an LLC (retaining the same 30-year loan on the property). I have heard of people doing this time and time again on the podcast as well as in the forums.

Sorry for any confusion, I appreciate your thoughts!

 

Originally posted by @Paul Defngin :

@Mack Owens check this out 

“SERVICING: D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (11/08/2017)

This topic contains information on allowable exemptions due to the type of transfer.

Unless the previous borrower requests a release of liability, the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer:
~ the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

Note: The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person prior to any subsequent refinance application in order to meet Fannie Mae's Selling Guide underwriting requirements."

Paul,

Forgive me for my lack of understanding.

Is that passage stating that if I were to obtain a conventional/traditional mortgage and transfer the title to an LLC there would be no review of the loan since I would be in control of the LLC?

And would you have any clarification on "and if the transfer results in a permitted change of occupancy type to an investment property" - What would constitute as a permitted change?

Thank you for the information any further assistance would be appreciated!

 

Originally posted by @Mack Owens :

Hello BP,

Currently house-hacking a duplex purchased at the end of May using private money but am running into the road block of finding a bank in my area that is willing to work with a Quit Claim Deed. Obviously I am wanting to secure long-term financing while rates are so low and get the property into an LLC for the added protection.

 Most banks that I have spoken with seem to understand the concept and do not seem opposed but aren't willing to provide any form of written guarantee that once the Quit Claim Deed takes place they won't call the note due. 

Would love suggestions, advice, connections if at all possible!

The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC).

If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt. Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a QC between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers;

If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)

I believe Freddie Mac follows suit. Here’s a BP post on the same topic; https://www.biggerpockets.com/forums/49/topics/610831-oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes

Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.

I am not a lawyer and this is not professional advice.

 

Originally posted by @Matthew McNeil :
Originally posted by @Mack Owens:

Hello BP,

Currently house-hacking a duplex purchased at the end of May using private money but am running into the road block of finding a bank in my area that is willing to work with a Quit Claim Deed. Obviously I am wanting to secure long-term financing while rates are so low and get the property into an LLC for the added protection.

Most banks that I have spoken with seem to understand the concept and do not seem opposed but aren't willing to provide any form of written guarantee that once the Quit Claim Deed takes place they won't call the note due.

Would love suggestions, advice, connections if at all possible!

The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC).

If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt. Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a QC between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers;

If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)

I believe Freddie Mac follows suit. Here’s a BP post on the same topic; https://www.biggerpockets.com/forums/49/topics/610831-oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes

Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.

I am not a lawyer and this is not professional advice.

I believe that provision of the title policy is for when the insured conveys the property to a third party and takes back a purchase money mortgage (PMM). When you own an interest in an LLC that owns real property I believe you don't have an interest in the land, same with a trust. I suggest the OP review the policy definitions for an "Insured". If the Grantee meets the definition then it should be an insured under the policy.

 

Existing hard money lender can and will call the note if you record a deed selling to a LLC even if it is your LLC. If you are doing this as a refinance the lender/attorney/escrow officer orders a demand for payoff from the hard money lender, then they are wired the funds at closing and deed is transferred to LLC at closing. Many conventional lenders are not lending to LLC entity that is new, they require the deed and note to be in your name. You might use a Living Trust, with different trusts for each property the deed change is a FAMILY transfer not a sale. Other issue is your property taxes will go up when you change to LLC as they can assess to current full value. re @MatthewMacNeil 's interpretation. If you change to LLC as a sale transfer (and there is no way to call it a family transfer) and have a conventional loan the servicer WILL find out in six months to a year. Your hazard insurance will be a problem as well - ask your agent if he will bump up price to commercial policy. If you make a late payment expect the notice of default from your servicer. Fannie and Freddie are not the owner they just guaranteed 25% of the loan. The servicer can enforce due on sale then you have a mess.

@Mack Owens As mentioned. it is Specifically Allowed to transfer to a single member llc that you own After the refi with a Fannie Mae loan. Verify with your title agent but your title insurance should still be good too. 

Originally posted by @Caroline Gerardo :

Existing hard money lender can and will call the note if you record a deed selling to a LLC even if it is your LLC. If you are doing this as a refinance the lender/attorney/escrow officer orders a demand for payoff from the hard money lender, then they are wired the funds at closing and deed is transferred to LLC at closing. Many conventional lenders are not lending to LLC entity that is new, they require the deed and note to be in your name. You might use a Living Trust, with different trusts for each property the deed change is a FAMILY transfer not a sale. Other issue is your property taxes will go up when you change to LLC as they can assess to current full value. re @MatthewMacNeil 's interpretation. If you change to LLC as a sale transfer (and there is no way to call it a family transfer) and have a conventional loan the servicer WILL find out in six months to a year. Your hazard insurance will be a problem as well - ask your agent if he will bump up price to commercial policy. If you make a late payment expect the notice of default from your servicer. Fannie and Freddie are not the owner they just guaranteed 25% of the loan. The servicer can enforce due on sale then you have a mess.

Your advice is full of holes.  You have no idea what you're talking about as is proven by the fact that you don't understand his question.