LLC/Personal Name Deed

10 Replies

Hello, Bigger Pockets community! I opened an account a few months back and have learned a lot from reading different posts and conversations, but this is the first time I've posted anything.

Anyway, here's my question. I bought my first couple of properties inside my LLC. Since these were cash sales, I'm in the process of moving them into a long-term fixed-rate mortgage in order to BRRRR out of them and pull the capital back out to reinvest. In order to get delayed financing, though, I have to deed the properties to myself just long enough to set up the mortgages and then deed them back to the LLC after the fact. Each time I move one of these properties, it costs me $110.00 in recording fees, etc. So, two properties moving one way and then back again would be a total of $440.00.

I was thinking that if I already know I'm going to have to do this on any future properties I purchase, would it make more sense to save half of those recording fees, etc., by making the initial cash purchases in my personal name so that I only have to move the properties once from my name to that of the LLC after the delayed financing mortgage process has been completed? It's not a ton of money, I know, but every little bit helps, and it seems senseless to pay extra fees if there's a way around them. Then again, if it's going to cause all kinds of problems that I haven't considered, then I suppose the fees for the additional move aren't the end of the world and are certainly worth the peace of mind.

I’m curious to know your thoughts on this. Thanks!

P.S. I know the above explanation might sound as though I’m going to trigger a due-on-sale clause; however, this is not the case for two reasons. One is that FNMA provides an exemption to the due-on-sale clause when executing a mortgage as part of the delayed financing exemption to cash-out refinances. Secondly, the bank I’m working with is already well aware that this is my plan and has approved it ahead of time.

 @Scott Kays , assuming it’s not staying on their books, what happens if/when the bank sells the mortgage and it’s serviced elsewhere?

@Mark S. : Thanks for the reply!

I'm assuming you're referring to the due-on-sale clause topic mentioned in the P.S. As far as that goes, my understanding is that since this is an FNMA loan, which provides for that exemption as part of the delayed financing stipulations, it shouldn't be an issue.

But, I guess my question is more to what liabilities I might be exposed to by buying in my personal name, refinancing, and then deeding it over to my LLC (1 move) vs. buying in the LLC's name, deeding it to my personal name, refinancing, and then deeding it back to the LLC (2 moves).

The one thing that came to mind was title insurance. On these first two properties, the LLC's name is on all of the original documentation, including the title insurance. However, if my original purchase and title insurance were in my personal name, but the long-term situation were for the property to be in the LLC's name, would my title insurance be void in that scenario?

@Scott Kays Buy them in a land trust and just change the beneficiary, no deed involved. 

Otherwise, be careful if choosing to use a Quit Claim Deed for these transfers.

FYI - The Fannie servicing guide, for about a year now, supposedly explicitly excludes a transfer into an LLC you own from the due on sale clause. You still have to close in your personal name, however.
Link: the-due-on-sale-clause-is-now-llc-friendly-sometimes

@Costin I. : Thanks! That's helpful. I've never looked into the land trust concept, so that gives me some homework to study up on. It sounds like a great idea as it would avoid all the back-and-forth. I'll certainly check that out. Thanks!

On the other, I just read through that thread you sent, and that makes sense. One of the contributors to that thread posted this article: https://denhalaw.com/quit-claim-deed-of-property-may-adversely-affect-title-insurance/, which, if I'm understanding it correctly, answers my original question. That is, buying in my personal name and moving it to the LLC after the fact would essentially nullify my title insurance.

So, it appears that if I want to preserve the title insurance, the way to go would be to either do it the way I did it previously (i.e., LLC to personal name and then back to LLC) or go with the land trust option that you suggested. The latter sounds more attractive as it seems that it would decrease my costs and be a lot more practical from a logistical standpoint.

Thanks again!

@Scott Kays Another advantage of using land trusts - they give you a layer of anonymity (not liability protection) that works great with the LLC (which gives you the liability protection), and keeps your name out of the public records (supposedly, you still have to be careful, e.g. with the title mistakenly recording the trust documents too).

As I mentioned, be careful when choosing to use a Quit Claim Deed - to maintain your title chain, you have to do it through a more expensive Warranty Deed (which might be another reason to use land trust, just check how they work together):
A person receiving a purported real estate interest via a quitclaim deed may receive no legal right to the property whatsoever. If the person seeking to transfer real estate with a quitclaim deed has no legal interest, nothing legally is conveyed. In the absence of title insurance--which is not available for a quitclaim deed--the person receiving the quitclaim deed has no legal recourse because the deed itself states that only the interest of the grantor, if any interest exists, is conveyed.
Whether title insurance terminates by transferring real property depends on the type of policy, and how “insured” is defined in the policy. You take a risk which could result in cancellation of your title insurance and complete loss of your real property without compensation in the event that a title issue regarding your real property arises.
Contact your title insurance company to determine coverage and if your policy does cover transfers , and when or how.

@Scott Kays

I agree with @Costin I. However be aware that some lenders won't deal with land trust the same way they won't deal with LLC.

A few will accept the land trust but not an LLC.

@Scott Kays  

The best strategy I have seen for purchasing properties while maintaining the most beneficial financing options and still getting the liability protection of an LLC is explained in this article about Land Trusts. You would just purchase the property into your own name, transfer it into the Land Trust and assign the LLC as the beneficiary. The main reason this would help in your situation is that the transfer does not trigger the Due on Sale Clause (which banks are glad to threaten but hesitant to actually use) because it is considered an Inter Vivos Trust and excluded from the Clause thanks to the St Germain Act. 

As @Costin I. mentioned, the Land Trust doesn't provide any liability protection, but if you have your attorney sign as the "nominee trustee" it can assist in your asset protection by providing privacy and deter any lawsuit before it begins. People don't like paying for discovery fees just to find out whether you do, or do not, own the property in question - and they would need to pay in order to get past the attorney-client privilege that you have when an attorney signs the public document.

An additional benefit is that it is considered an estate planning tool, so when you decide to pull your estate plan together it will be much easier. If you have any more questions feel free to reply - I work with these entities quite often.

@Scott Smith :

Very insightful and useful information! Thank you so much for taking the time to explain that! I may reach out once I start getting closer to my next venture.

Thanks again to everyone else for your contributions to this thread, as well! Much obliged!