Moving Rental into a new LLC

6 Replies

Do not do a quit claim deed, you may loose your title insurance. Instead use a warranty

@Duane Whittaker

 You are probably going to lose your title insurance either way. You will also have to pay the transfer tax or the stamps or doc fees whatever it’s called in your state.  

The bank doesn’t have to know your refinancing it but if they do find out they may want to call the loan due but in my lifetime I’ve never experienced the bank do that or seen it done as long as it is being paid. Check the mortgage and see if you have a “due on sale clause” which changing owners is considered. 

To limit the risk of the due on sale clause, you can create a land trust that you would be the initial beneficiary, then make an assignation to your LLC.

I use trusts a lot and @Mike S.    has a point but even if you put it into the land trust the ownership is considered  changed and most banks don’t understand trusts and hate them. However, You may be able to beat the transfer tax with that strategy. 

I have actually gotten permission from the mortgage company prior to moving my homes into my LLC. Of course, that is a bit of a risk because if you ask permission, you will be opening up a can of worms. Typically the mortgage company wants money at every opportunity, even if they give permission for the change. However, I used the same lender for 3 deals back to back and established a pretty good relationship with the lender and they didn't give me any hassle about a refinance or "due on sale clause". Most people just make the transfer and don't tell the bank. Like the old saying says...its better to ask for forgiveness than to ask for permission

In the case that you have to ask for forgiveness because the mortgage company figures out you have been moving property to an LLC, it can be an uncomfortable situation. I've never actually met anyone whom this has occurred to though.

How do they find out you ask? Well if the tax notices aren't in your name anymore and in the LLC's name is one way. Additionally, the insurance will probably have to be changed, and the mortgage company will probably see that change. Make sure that the insurance will still be good when you change the property ownership to the LLC. The last thing you want is to need to file an insurance claim and figure out that the property isn't covered, because they insured your property, and it isn't your property any more.