I currently have two residential loans in my name for investment properties and would like to transfer title to my LLC. I understand the due on sale clause exists but that it rarely ever gets called on.
Do you have tips on how to transfer title without triggering this? Is there a particular timeline I should wait to do it?
This unfortunately comes up too frequently. The above is one of the threads where I've posted on this in longer detail...
To add to it, the Due on Sale clause is in my opinon the least of your worries. Some attorneys haven't seen it in 40 years, some have seen it a handful of times in 40 years. Besides, if it gets called, refinance... no big deal.
The greater issue is protecting your corporate veil which I wrote in length in the above linked thread. Remember, the lender really doesn't have a responsibilty to you to preserve your LLC's corporate veil, they just want to sell you a loan. Most lenders aren't both residential and commercial lenders, especially not the larger companies. Legal entities are not eligble for conforming residential loans. So you have to get a commercial loan --- that's just part of the expense of having the LLC and trying to garner its benefits.
"Franksteining" your asset with Title in the LLC's name but mortgage in your name in my layman's opinion is not the way to go. The LLC only provides legal limited liability to what it holds. Since the mortgage was given by you, it won't fall under the LLC's "umbrella."
Consult a qualified professional, or two. Work with the appropriate lender for your situation, a commercial (or really non-residential) lender. Good luck.
Investor · Middle Tennesse · Member since 2019 · 37 posts · 54 votes
5y
Mario, I am currently under contract for a property with a residential loan and plan on doing the same thing. My LLC is setup and ready to have the property transferred to it but I had the same worry as you.
I was able to talk to my lender and was completely transparent about my plans and she let me know that as long as I stayed inside the red tape, they would have no problem with me doing so and the due on sale clause would not be an issue. There were a few stipulations such as having to wait 30 days after initial closing before transferring(which you won't have to worry about) and not being able to refinance in the future with it in the LLC's name. If I broke those rules then I could potentially be in trouble but at least for my situation it will be worth it.
So I would just give your lender a call before you make any moves and hopefully they will tell you the same thing that I heard.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
5y
@Mario Lopez@Alexander M Dant Fannie Mae specifically allows you to do this, no issues whatsoever, fir Fannie loans originated in the last few years....I forget the exact date but you can google it up.
I believe it was July 1, 2016. So at least in that situation, which is exactly what I'm doing, it really hasn't been around long and a lot of people still don't realize it even after 5 years.
You still have to hop back and forth between your own name to purchase, the LLC's name for protection, and then back to your name to refinance, but to me it's 100% worth the hassle for the protection that the LLC offers.
This unfortunately comes up too frequently. The above is one of the threads where I've posted on this in longer detail...
To add to it, the Due on Sale clause is in my opinon the least of your worries. Some attorneys haven't seen it in 40 years, some have seen it a handful of times in 40 years. Besides, if it gets called, refinance... no big deal.
The greater issue is protecting your corporate veil which I wrote in length in the above linked thread. Remember, the lender really doesn't have a responsibilty to you to preserve your LLC's corporate veil, they just want to sell you a loan. Most lenders aren't both residential and commercial lenders, especially not the larger companies. Legal entities are not eligble for conforming residential loans. So you have to get a commercial loan --- that's just part of the expense of having the LLC and trying to garner its benefits.
"Franksteining" your asset with Title in the LLC's name but mortgage in your name in my layman's opinion is not the way to go. The LLC only provides legal limited liability to what it holds. Since the mortgage was given by you, it won't fall under the LLC's "umbrella."
Consult a qualified professional, or two. Work with the appropriate lender for your situation, a commercial (or really non-residential) lender. Good luck.