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Updated over 6 years ago on . Most recent reply presented by

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14
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Tim Viviano
  • Rental Property Investor
  • Godfrey, IL
5
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14
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LLC and piercing the corporate veil

Tim Viviano
  • Rental Property Investor
  • Godfrey, IL
Posted

I am interested in hearing opinions (not legal advice of course) if you have the time to respond. If I purchase a rental in my name, keep the loan for it personally, and deed the property to my LLC does that make it easier for someone suing the LLC to "pierce the corporate veil" and come after me?

My lawyer said it would and I trust her legal opinion, but I hear of so many people doing this so are they just more at risk? Or is it more of a "yes but low llikelihood" type of gamble? Or, is she just wrong?

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144
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101
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JD Gunter
  • Investor
  • Ocala, FL
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144
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JD Gunter
  • Investor
  • Ocala, FL
Replied

She's correct. You bought it and you have the debt for it. If someone were to sue you, many judges would say that is your personal asset, regardless of the thin veil. A good way to think about LLCs is when they are managed appropriately, they function like a company owned by someone else. You would never give a house to a company for nothing and carry the debt. When you do something like that, it communicates that the company is not a legitimate business endeavor held at arm's reach, it is an extension of you personally. 

You're also at risk of triggering the "due on sale" clause of your mortgage by doing a quitclaim deed to another entity when the loan is in your name. When you transfer title, that is a sales transaction and the mortgage is likely due in full. 

Many people set up LLCs in their personal names, with their home address, and co-mingle funds, and feel protected. When an LLC is set up correctly and managed correctly, it can offer significant protection, but just having an LLC isn't as bulletproof as some people think.

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