Cash-Out Refinance from LLC to Personal Name

[Shawn Kostoff]

I purchased a rental property in Wilmington, DE in the name of my LLC on a interest-only loan from a family friend. I am now looking to do a cash-out refinance on the property and I am looking to do so in my personal name to get the best terms possible. My question is what are some of the pitfalls or concerns I should have with this process. In an perfect world 6 months I will then transfer the title back into the name of my LLC.

1. How often does this trigger the due on sale clause?
2. What type of risk does this cause (if any) going from my LLC to my personal name, back to my LLC?

3. What else am I missing?

Anyone who has gone through this process before or with knowledge on the subject that can offer some insight would be greatly appreciated!

[Brian Schmelzlen]

There isn't a problem with taking the property out of the LLC.

Technically, transferring the property from your name to the LLC triggers the due on sale clause. I would be up front with the bank about it though, and ask if transferring to a single-member LLC triggers it.

Normally just because the clause is triggered doesn't mean that it is enforced.  If you are making all of the payments, that is typically all the bank cares about.  However, that is not a guarantee that if interest rates go way up the banks won't change this policy and enforce it so that they can try to force you to refinance to a higher interest rate loan.  Seems unlikely, but it is a possibility.

You are also at risk every time title changes to the property that your property value will be reassessed.  However, most states have an exemption for when the beneficial ownership has not changed.