Fannie' Delayed Financing to refi w/ quitclaim to LLC

Aventura, FL · Member since 2014 · 6 posts · 1 vote

Have anyone done the following: Buy property with cash, refi through the delayed financing program (Fannie's) with followed quitclaim to LLC?

The reason I am asking is because the "Due on Sale Cl" is a notorious thing to discuss. BUT I was just offered exactly this scenario by an LO and was curious because he did that openly and upfront (I have an email from him saying this). That surprised me so I researched further and came across this =>> https://www.fanniemae.com/content/guide/servicing/d1/4.1/02.html

So, does that (LO's suggestion + this allowable exemption) mean that some lenders see quitclaim to LLC a legit thing to do now?

P.S. I will be sure to ask the LO on Monday as well

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Kevin Romines

Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes

@Tom Gimer Yeah, I know of many that do that as a way to protect their personal assets. But any LLC can be pierced by a good attorney that is hell bent on piercing the corporate veil. Just financing the property in your personal name and then moving it into your LLC, can be viewed as piercing the corporate veil.

The better protection is a max. sized liability policy followed by a properly sized umbrella policy. Plus the insurance company has to pay all defense costs. So the insurance would be willing to settle rather than paying out the max. of the policy limits, but that is also good for the landlord.

There are portfolio loan for those that want the loan and title in the name of the LLC. Some require personal guarantees others don't.

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
6y
If you read the conditions, the proposed transfer cannot violate the terms of the deed of trust... the 12 month occupancy as primary residence requirement is specifically mentioned.
Further, the validity of transfers such as this require that the lender be given notice and the opportunity to review and approve the proposed transaction... which approximately 0% of BP users are doing.
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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
6y
I hate to disagree here, but the lender is not required to be given notice. You cant change the occupancy, but if you financed the property as a non-owner occupied, you can transfer it to an LLC that the borrowers are the majority members of and that's what their rule was written for. Its up to the lender after they find out that this has been done (typically a change of insurance notice that they received) to notify the borrower, that in order to refinance, they will have to revert title back to themselves on a personal basis.
This was done by Fannie because investors were doing this and they wanted to accommodate them with a rule change. It was widely expected that Freddie would follow suit, but as of yet they haven't?
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Marina Startseva
OP
Aventura, FL · Member since 2014 · 6 posts · 1 vote
6y
Kevin Romines, thank you for responding! I asked this question because LO, whom I contacted, upfront and openly suggested that I move title to LLC after we are done with the refi. So I wondered if there were investors out there who have spotted lenders that accepted the "LLC" exception on a policy level.
I think it's only Fannie so far and not Freddie.
Tom Gomer, the 12 month occupancy as primary residence requirement is mentioned in brackets as an example of a possible event that violates the purpose of the loan. In my case, I was discussing a non-owner occupied scenario with the LO so in my case this particular example would not trigger a breach.
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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
6y
@Kevin Romines You're right... I read that provision wrong.
Most on here are buying owner occ for the rate, then transferring to their entity.
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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
6y
@Tom Gimer Yeah, I know of many that do that as a way to protect their personal assets. But any LLC can be pierced by a good attorney that is hell bent on piercing the corporate veil. Just financing the property in your personal name and then moving it into your LLC, can be viewed as piercing the corporate veil.
The better protection is a max. sized liability policy followed by a properly sized umbrella policy. Plus the insurance company has to pay all defense costs. So the insurance would be willing to settle rather than paying out the max. of the policy limits, but that is also good for the landlord.
There are portfolio loan for those that want the loan and title in the name of the LLC. Some require personal guarantees others don't.
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