Rental property under LLC,do I have to inform the Mortgage Comp?

18 Replies

Was the loan originally in your name? If it was legally yes you are obligated and they may do a due on sale on you and make you pay it off. 

What mortgage company?

You mean the one that lent YOU money so YOU could purchase the property? The one that might get a little upset if YOU stopped paying the mortgage? The one that probably has a "due on sale or transfer" clause in their contract?

I'm pretty sure they'd want to know, and they're probably not going to be happy about it.

But even without any legal obligation, I'd have to say it's at least common courtesy. And yah, they'll probably enforce their "due" clause. When they lent you the money, they checked your credit, not the LLC's.

Originally posted by @Ayen Lee :
Originally posted by @Irina Belkofer:

They won't enforce "due on sale" if your LLC is single member company and you're the only owner.

Ask @Chris Mason - he explained it few weeks ago

The LLC was a partnership between my Husband and I, am I in big trouble now?

 Not necessarily - linky link

Originally posted by @Ayen Lee :
Originally posted by @Irina Belkofer:

They won't enforce "due on sale" if your LLC is single member company and you're the only owner.

Ask @Chris Mason - he explained it few weeks ago

The LLC was a partnership between my Husband and I, am I in big trouble now?

 Relax, you're fine.

As with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the same individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust).   Typically, the same applies to LLCs where you and your spouse are sole members.

Actual Lenders Title Insurance states;

CONTINUATION OF INSURANCE

The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.

Additionally:

Transferring a real estate title to an LLC doesn't transfer the mortgage….

Basically what I was told is the lender does not need to be informed if transfer is after closing. They do not “care” as long as the mortgage is under the borrower name. But if it’s transfer at closing, there would be some trouble. 

Originally posted by @Account Closed :
Originally posted by @Matthew McNeil:
Originally posted by @Ayen Lee:
Originally posted by @Irina Belkofer:

They won't enforce "due on sale" if your LLC is single member company and you're the only owner.

Ask @Chris Mason - he explained it few weeks ago

The LLC was a partnership between my Husband and I, am I in big trouble now?

 Relax, you're fine.

As with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the same individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust).   Typically, the same applies to LLCs where you and your spouse are sole members.

Actual Lenders Title Insurance states;

CONTINUATION OF INSURANCE

The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title. This policy shall not continue in force in favor of any purchaser from the Insured of either (i) an estate or interest in the Land, or (ii) an obligation secured by a purchase money Mortgage given to the Insured.

Additionally:

Transferring a real estate title to an LLC doesn't transfer the mortgage….

Does having a mortgage in ones personal negate the LLC shield?

To me its mingling personal business with business business.

Sam  the human being pays the mortgage not Sam llc.   Please someone answer .

No, its not mingling personal and business. And, no, it doesn't "negate the LLC shield" or expose you to having the "veil pierced" is the better legal term. Quitclaiming the property to your LLC owned in your name - and the name of your spouse if you purchased the property as joint owners (read my previous post above) is only part of asset protection you want to pursue.

Yes, "Sam the human" pays the mortgage, not Sam the LLC - but understand that Sam the human is the person who's name is on Sam the LLC's bank account as an authorized signatory as Sam the Managing Member.

If you want more info on Asset Protection just do a search and you'll see lots of other posts on that topic.

Hope that helps.

@Ayen Lee you don't have to inform the Mortgage company, they will be notified by the Insurance company :>)

Kidding! But true - even if you don't inform them, once you'll change the insurance, because you have to do that once the LLC owns the property, they will be notified and freak out. That's how most of transfers are discovered.

You got a lot of misinformation, if not downright bad advice above:

1. Quit Claim Deed - be careful when choosing to use a Quit Claim Deed:

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.

2. DOS - The transfer most likely will trigger the Due on Sale clause (DOS) - a detailed resource on Due on Sale you might want to read is: the-truth-about-getting-around-due-on-sale-clauses

Also, these threads might be worth reading:

386043-bank-called-my-due-on-sale-clause

183825-due-on-sale-clause-was-called-by-bank

232247-due-on-sale-clause

Then, if you choose to proceed, at least you'll know what you getting into.