Bank Refused My LLC Title Transfer

48 Replies

I recently received in the mail a notice that I am not allowed to transfer my primary home to my LLC. They mentioned restrictions due to Fannie Mae.

I would be subject to termination if I do not transfer it back.

Has anybody else dealt with a similar situation? I have never heard of this problem before and am surprised since transferring to my LLC is more protection against the asset for them.

Any suggestions/recommendations how to correct this with the bank and allow my LLC to own title?

Originally posted by @Kenny Dahill :

I recently received in the mail a notice that I am not allowed to transfer my primary home to my LLC. They mentioned restrictions due to Fannie Mae.

I would be subject to termination if I do not transfer it back.

Has anybody else dealt with a similar situation? I have never heard of this problem before and am surprised since transferring to my LLC is more protection against the asset for them.

Any suggestions/recommendations how to correct this with the bank and allow my LLC to own title?

 Your Comment: "since transferring to my LLC is more protection against the asset for them."

How is that so?

If your LLC gets sued you are more likely to walk away from the property than if you get personally sued. All of your assets, banks accounts, etc are at risk personally and that is what they based the loan on.

It depends on the bank. Yours seems to want to keep the asset in a portfolio they understand, have documentation for and know what your personal obligations are. The guy responsible at the bank for your loan doesn't trust you. Why should he? He would lose his job and that just doesn't appeal to him.

Your LLC may have liens, judgements, a partner, be improperly formed, pending litigation, they don't know and apparently they don't want to spend the time and resources to find out.

Why didn't you do the loan in your LLC? Oh, I get it. It didn't have proper income and documentation.

It's nothing personal from the bank, it's their money and they decide how to invest it. 

Call Keyt law in Scottsdale, they've done 6,000 LLCs and see if they have a solution for you.

Thanks @Mike M. .  To address a few points:

  • Why didn't I do the loan in my LLC?  Simple answer, I didn't have one established until 2 years after living here.
  • Protection:  I personally am more likely to get sued or have judgements against than the LLC.

@Kenny Dahill

The most recently published version (February 2019) of Fannie Mae's selling guide says that there is an exception that allows you to transfer a property to an LLC. https://www.fanniemae.com/content/guide/servicing/...

Per Fannie Mae:

A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to 

*a limited liability company (LLC), provided that:

  • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and

    the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

You should reach out to your lender and run this by them and see what they say.

Originally posted by @Bob Okenwa :

@Kenny Dahill

The most recently published version (February 2019) of Fannie Mae's selling guide says that there is an exception that allows you to transfer a property to an LLC. https://www.fanniemae.com/content/guide/servicing/...

Per Fannie Mae:

A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to 

*a limited liability company (LLC), provided that:

  • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and

    the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

You should reach out to your lender and run this by them and see what they say.

 I think he said it is his primary residence and the link says: "if the transfer results in a permitted change of occupancy type **to an investment property**, such change does not violate the security instrument

@Kenny Dahill so are you saying you transferred your property to an llc and the bank actually called you out on it? That’s amazing. All the gurus say this never happens, appears that may not be the case

Originally posted by @Caleb Heimsoth :

@Kenny Dahill so are you saying you transferred your property to an llc and the bank actually called you out on it? That’s amazing. All the gurus say this never happens, appears that may not be the case

 You forgot to ask the question, "Did you contact the lender to get their approval or see if it was okay". ;-)

When asked, almost all will say not to do it. You have no obligation to ask.

Apparently just my luck! Although I am in the process to remove my PMI, not sure if that was caught during or if completely separate.

I'm having one of those years with my portfolio.  

Missed my first ever rent due to eviction, missed our college bubble and had to lower rent by $200, had to replace several appliances for that same house and then replace another property's HVAC unit.  

Add this LLC to the list of difficult year. All while trying to bootstrap my startup and live completely off my passive income. Perfect timing!

@Kenny Dahill . Did you actually make the transfer or just ask about the transfer? If you ask they’ll all say no.

@Caleb Heimsoth I did not ask, I just went for it.

They said I could always refi, except I've got such a great rate (3.625%) that I would prefer not too.

Originally posted by @Kenny Dahill :

@Caleb Heimsoth I did not ask, I just went for it.

They said I could always refi, except I've got such a great rate (3.625%) that I would prefer not too.

 Wow a bank actually called the note due or threatened to.  Well they’re just exercising their right so, I’d transfer it back and let that be the end of it.

@Caleb Heimsoth , totally agree.  It's not worth the risk so I am better off transferring it back.  Which sucks because of lost time but oh well.

Originally posted by @Kenny Dahill :

@Caleb Heimsoth, totally agree.  It's not worth the risk so I am better off transferring it back.  Which sucks because of lost time but oh well.

I looked into the whole transfer llc thing in great detail last year, I decided it wasn’t worth the hassle.  Looks like I was right if you’re dealing with conventional financing  

If you want the protections of an LLC, then you have to get a commercial loan at worse terms. If you want the preferential lending terms of conventional loans then you have to personally own the property. Its an either or situation.

@Kenny Dahill

Its sounds like you alerted them

to the transfer because you were having them look into modifying loan so no PMI. Shame on you. Get your business taken care

of before the transfer to LLC next time. Your assumption that it is more protection for the bank makes me question whether you made other correct assumptions because its really a poor assumption that has no rationale. If something is more protection for a bank they would probably have done it in the first place and commercial loans would have better terms. If you want to keep it personal and reduce PMI and this bank will not allow it I would probably refi to another

lender as this rarely happens, unless you give them reason to take a closer look like you did. Otherwise your option is to go commercial which will cause you to lose many of the benefits of investing residential like the better financing.

Originally posted by @Kenny Dahill :

@Caleb Heimsoth I did not ask, I just went for it.

They said I could always refi, except I've got such a great rate (3.625%) that I would prefer not too.

 How much did you pay to transfer it

@Kenny Dahill

Banks provide huge discounts (and better rates) if you can get a loan backed by the federal government. For instance you get an FHA/VA/USDA loan for private bowers. Which mean the citizens of the country are backing your home purchase so that you have a place to live. It is not meant for investors who want a better rate to make money instead of paying prime. If it is an investment it is meant that you are taking out an investment (commercial) loan and paying rates that such a property qualifies for.

An LLC is a business (even if you take a conventional loan as a private citizen). Businesses are not entitled to get homeowner rates (or people looking to find a residence for them and their families). Businesses pay business rates. So transferring to a business means you do not need consumer protections (your PMI removal request alerted them that you are not a "private" borrower) instead you are a company and they are leaving money on the table by giving you those rates. I would guess that they would never have loaned money to a company at 3.625% for an investment.

So long story short the rates of 3.625% are not meant for "investors" to make money with (while being protected by being incorporated). They are meant for homeowners. It is asking for your cake and eating it too. 

Originally posted by @Mike Cumbie :

@Kenny Dahill

Banks provide huge discounts (and better rates) if you can get a loan backed by the federal government. For instance you get an FHA/VA/USDA loan for private bowers. Which mean the citizens of the country are backing your home purchase so that you have a place to live. It is not meant for investors who want a better rate to make money instead of paying prime. If it is an investment it is meant that you are taking out an investment (commercial) loan and paying rates that such a property qualifies for.

An LLC is a business (even if you take a conventional loan as a private citizen). Businesses are not entitled to get homeowner rates (or people looking to find a residence for them and their families). Businesses pay business rates. So transferring to a business means you do not need consumer protections (your PMI removal request alerted them that you are not a "private" borrower) instead you are a company and they are leaving money on the table by giving you those rates. I would guess that they would never have loaned money to a company at 3.625% for an investment.

So long story short the rates of 3.625% are not meant for "investors" to make money with (while being protected by being incorporated). They are meant for homeowners. It is asking for your cake and eating it too. 

Comment: "It is not meant for investors who want a better rate to make money instead of paying prime."

And it means you are stealing from me, the taxpayer. Shame on you.

@Kenny Dahill

Do a corrective deed to have the property deeded into a land trust where you are the beneficiary. Then later assign the beneficial interest to your LLC. The Garn St Germain act will protect you against the due on sale clause.

@Kenny Dahill I Hope your year improves! We were just talking about the possibility of transferring some of our personally owned properties-- this is good to know; thank you for posting it.

@Kenny Dahill it is called the due on sale clause. Placing your home in an LLC would absolve you of personal liability so this is not in the best interest of the bank.

keep in mind if your REALLY sued your going to get sued personally and LLC is very little protection in the real world.. I know it sounds great and all.. but they are easily pierced especially if its a single member type one.

if you have investor in your LLC.. that creates more of a shield..

Originally posted by @Jay Hinrichs :

keep in mind if your REALLY sued your going to get sued personally and LLC is very little protection in the real world.. I know it sounds great and all.. but they are easily pierced especially if its a single member type one.

if you have investor in your LLC.. that creates more of a shield..

 Maybe in your jurisdiction, but properly documented businesses avoid personal liability in a majority of suits. Maybe the difference is my clients actually have a lawyer versus legal zoom...

Originally posted by @Ronald Rohde :
Originally posted by @Jay Hinrichs:

keep in mind if your REALLY sued your going to get sued personally and LLC is very little protection in the real world.. I know it sounds great and all.. but they are easily pierced especially if its a single member type one.

if you have investor in your LLC.. that creates more of a shield..

 Maybe in your jurisdiction, but properly documented businesses avoid personal liability in a majority of suits. Maybe the difference is my clients actually have a lawyer versus legal zoom...

I think my point is every complaint I have ever seen that name the LLC they name the owners as well. especially if its single member.. whether they prevail is another matter.. I think what happens is folks just think because you have an LLC means lawyer looks at it and says Oh shoot its an LLC we cant sue them personally.. I know for a fact that no work.. but again 97% or more of these settle out of court..

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