Under Contract, Created My LLC, How does my LLC buy this home?

Question

Hello all you lovely real estate people!

I'm under contract on a property and I have signed this contract with "My Name and/or assigns". I have created an LLC for this property and I need to buy the property with this LLC I created to be eligible for the hard money loan. What does the process look like in terms of making sure the LLC buys it and not me. I met with an attorney and they said make sure I do a novation to the contract which is like a new contract all together to avoid double transfer taxes. I live in PA and I want to make sure I do this right so I don't have double transfer taxes. I feel because I have that "My name and/or assigns" as the buyer, I shouldn't have to do a novation, I just need to assign the contract to my LLC and have my LLC buy the place. I don't know the actual process of assigning a contract. Do I just have the realtor write up some sort of addendum? I want to know what steps to take with Realtors involved as well as my title company. Please help with the specifics of this, we are closing in 10 days and I really need some help. Thank you in advance to anyone willing to chime in.

Kind Regards,

Jacob

Jacob Bopst · Answer

Hello,

For everyone wondering how this turned out, because I had in my contract "My name and/or assigns" and I coordinated with title, we simply wrote an addendum stating 123 Main St LLC is now the buyer and the LLC bought the property with no double transfer tax. Thank you to everyone for their help and input!

Regards,

Jacob

Jim Hogan · Answer

@Jacob Bopst

How much is the transfer tax?  It is most likely 1% of the purchase price unless if the seller is making you pay both sides or if you are buying somewhere like Philly. Is it cheaper to pay it twice then to pay an attorney fee?  No offense to the attorneys out there but it could be cheaper.

Robert DiFranco · Answer

@Jacob Bopst

Jacob. As a retail broker, I would speak/delegate  to your attorney or call a few real estate specific attorneys in your area. Be sure to hammer the tough questions if they are local and you are buying a deal in a different state.

“Do you do deals nationally? Have you worked in X real estate sector?”

Best of luck, I’m sure you’ll be fine and closed.

Justin Hammond · Answer

Yes, that works

Bradley Sriro · Answer

As @Justin Hammond mentioned, I would simply have the agent draw up an addendum listing your LLC as the direct purchaser instead of you. If the hard money loan is provided to the LLC, and the title is taken under the LLC, you should be fine. You just have to make sure that the seller is ok with signing the addendum. It shouldn't be a problems since no other terms of the contract are changing. If the seller balks at the addendum, simply try explaining the reasoning behind requesting the change and hopefully that will be sufficient. At the end of the day, the seller only wants to ensure that the deal is going to close. Best of luck!

Chris K. · Answer

@Jacob Bopst

Depends on several factors but most likely yes. Try reading Scenario 2 in the PDF below.

https://www.revenue.pa.gov/Gen...

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Jacob Bopst · Answer

Hi Chris,

Thanks so much for your response and that makes a lot of sense. I am working with my title company to ensure that the LLC will be on the title, if this is the case in PA, if I write an addendum to have the LLC as the buyer is this just a risk that there will be double taxation, or is it definite? I feel like if the title company has it so it shows it is just the LLC as the purchaser and there is an addendum it would only be the LLC buying and I would only pay transfer taxes once not twice. Does this make sense or am I absolutely going to be hit with that double transfer tax if I just do the addendum? This is my first time doing this and I really appreciate your opinion and time. I understand you are just speaking your mind here and not giving advice, thanks so much again.

Thanks,

Jacob

Chris K. · Answer

@Jacob Bopst

Realty transfer taxes in Pennsylvania is a complicated system with a lot of odd issues. The attorney you met with is absolutely correct. You don't want to assign in your situation because it exposes yourself to a high risk of double transfer taxes.

I would go back to that attorney that gave the correct advice and ask him/her to represent you. If the seller balks at canceling the original contract and signing a new one, you would have to do some analysis as to what risk level you are at with double transfer taxes.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Jacob Bopst · Answer

Hi Justin, thanks for your reply. If it is just an addendum, what does the verbiage specifically look like so I can ask my realtor to draft it up? Something like "Blank LLC will be the buyer and all other terms and conditions shall remain the same." would that work?

Justin Hammond · Answer

I'm not sure if PA is any different to my area, but I would just have an Addendum to the contract that says your LLC is the buyer, and all other terms remain unchanged.