2 people on title, 1 taking the mortgage - Partnerships

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2 people on title, 1 taking the mortgage - Partnerships

Heshel Mangel
Member since 2018 · 208 posts · 90 votes

I just finished listening to BP Podcast 92 where @Brandon Turner talks about partnerships. He mentioned structuring his partnerships where his partner takes on the mortgage and down payment and both their names are on the title. Also he has an LLC for each of his partnerships.

My question is, firstly, are most banks ok with this putting one name on the mortgage but where that person really only owns half the property because there are 2 names on the title? 

Second, maybe he meant that the LLC is the name on title but each LLC has 2 owners so there really is only 1 name on title (LLC) and 1 name on mortgage (Partner)?

If anyone can shed light on what he meant or how to structure these properly, I'd greatly appreciate it. 

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  • James Galla
    Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
    7y
    @Heshel Mangel, practically, a bank isn't going to originate a loan for the value of a home that only obligates half the value of the home in the event of default. When you go through the motions, the bank will see who is taking ownership of the property via inspection of the documents (purchase and sales agreement, deed, etc), so it won't slip by them. So, after the transaction, you'll generally be subject to a due on sale clause, and your transfer of the property interest to someone else doesn't erase the full obligation of the property to the bank.
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  • Heshel Mangel
    OP
    Member since 2018 · 208 posts · 90 votes
    7y

    Thanks for the response. 

    I just spoke to a MLO who told me they have no problem with 2 people on the deed one on the mortgage but won't lend a residential loan with an LLC on title.

    Is this whole discussion just case-by-case depending on the particular bank? I can't seem to find one answer that people have done. 

    I don't feel like my question is anything revolutionary, I'm sure many people have had partnerships and LLC's, I just can't seem to get a clear answer.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    7y

    @Heshel Mangel , 

    Is there a reason for being one on the mortgage?

    That might create a basis and at-risk issue for the other investor where he cannot deduct the losses from the partnership for tax purpose. 

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  • Heshel Mangel
    OP
    Member since 2018 · 208 posts · 90 votes
    7y

    A partnership where one person has the drive and is willing to do all the work, and the other just wants their money to be invested in RE and receive a nice return compared to other forms of investing. Instead of putting 50k in the stock market they can put it into a house where they'll receive 50% cash flow and 50% profit from future sale of house. 

    Putting the mortgage in their name is easier, as they can better qualify for the mortgage due to better credit and/or not having any other loans currently on their record, and they are one's bringing the downpayment. 

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