I've tried searching for an answer to this, but couldn't find anything.
I just finalized all of my paperwork and whatnot for my LLC. Long story short, my first rental property is now the first series under my LLC.
Here is my question; Now that my first property has been quit claimed, who technically has their name on the mortgage? Is it still my name? ...or is it now owned by the LLC. I'm on the hunt for a few more properties, but if my current rental isn't in my name... then I could pick up a little extra buying power, right?
Forgive my lack of knowledge. I've had this rental for 4 years now and it has always cash flowed like a champ, but I've always done things somewhat informally (probably not the smartest plan). I was recently convince by my dad that I should start a series LLC and give real estate investing a real shot.
The mortgage document is a separate contract with a third party; namely your mortgage lender. If the mortgage lender did not agree to refinance or change the mortgage document, you are still personally liable. Consult a local attorney.
Thanks for the reply. I'll have to keep doing my homework on all this stuff.
A word of caution: If you have already quitclaimed the property from your name to the LLC, you may be in violation of the mortgage documents. Mortgage documents usually contain an acceleration clause that requires the full principal amount to be repaid in a short period of time if the property is transferred. These types of transfers usually stay under the radar, so they are not usually a problem. But if you contact your mortgage company, you may be alerting them to the fact that you have already transferred the property in violation of the terms of the mortgage agreement.
I don't like series LLCs and don't usually recommend them to clients, but that's another story.
Thanks for the heads-up. I'm not too worried about it. Even if there is some sort of acceleration, I have enough money to pay off the note. I don't owe much on the house.
On a side note, why wouldn't you recommend a series LLC?
I can't speak for @Jer Fortenberr, but series LLCs run into a bunch of tax issues with local and federal government, as they have an unresolved status among the US Tax Court. Such LLCs may not be the best for tax planning purposes.
@Chris Shuptar There are several reasons. For one thing, only a handful of states have enacted series LLC laws, and it is not clear that those laws will be respected in states that have not adopted series LLC laws. But the bigger issue, in my opinion, is that there is significant uncertainty in the bankruptcy laws. State law defines "person" differently from the Bankruptcy Code. State law may treat each series as a "person" that can enter into contracts, sue and be sued, etc. The Bankruptcy Code doesn't include series in its definition of a "person." So the Federal Bankruptcy law may not follow state law. This could cause the plan to file if the series is ever forced into bankruptcy. Until that issue is straightened out, I typically recommend a holding company/subsidiary structure over a series LLC.
Interesting. I will have to dig further into this. I might stop by my attorney this week and discuss it further. Thanks for all the info.
What are the main differences between a series LLC and a holding company?
The few real estate investors that I know have all done series LLC's with great success here in Chicagoland. That is the only reason why I chose to take the same path.
@Chris Shuptar A holding company/subsidiary structure is one where you set up one LLC as a holding company, then set up other LLCs underneath it to hold each property. The holding company is the owner of the individual LLCs, and you are the owner of the holding company. That type of structure provides you with the same benefits of a series (protection at the property level), but without the uncertainty.
Here's the thing: We don't really know whether investors are really doing series LLCs with great success. You can't tell that when everything is going well. You don't find that out until the series is in bankruptcy and the bankruptcy court has to decide how to treat the series. That hasn't been well-tested. To my knowledge, there is only one case (Dominion), which involved a Delaware series LLC.
Thanks for the info!