Husband and I have 3 homes with 3 mortgages. We're about to rent out our first SFH but are curious about the protection of an LLC. What is the best approach to getting at least 1 home under an LLC? I know that any homes currently with a mortgage would be extremely difficult to be transferred into an LLC. We're in Clarkston, MI. We're both full time professionals with a W2 income. We appreciate any advice. Thank you.
What are your thoughts as to the protection a LLC will give you? There is a common misconception in the real estate world that an LLC will fully protect all of the assets that a person has outside of that LLC. The reality of the situation is that if an opposing attorney is dead set on piercing the veil of the LLC they can do so fairly easily. Because of this, the best set-up is an LLC with the highest liability coverage you can get plus the highest umbrella coverage you can get.
The issue with transferring the title to an LLC is that it violates the Due-on-sale clause of the lending contract. The exception to that rule is that on June 1, 2016 Fannie Mae changed their rules to allow the borrowers on the loan to transfer title to an LLC that the borrowers are the majority members of the LLC without it violating the Due-on-Sale clause. So you need to double check your existing mortgages to see if they are Fannie Mae loans that originated after June 1, 2016 if so you're clear to transfer, if not you will be violating the Due-on-Sale clause.
Even if you violate the Due-on-Sale clause and if the lender becomes aware of the violation it is up to the individual lender to decide if they will call the note due thereby foreclosing on you. They typically find this out due to the fact the LLC must take out insurance in the name of the LLC at which point the insurance company will send a new binder to the lender as proof of insurance. The lender will see that the insurance shows a different name than the borrower they have on the loan, this is when they become aware of the title transfer.
I hope this helps you understand some of the issues you're going to run into based on your game plan.
Best of Luck!