llc question regarding bank accounts

5 Replies

im currently buying a property and after i purchase it I will be transferring the title to my llc but the banker is telling me that I can not transfer the loan into a llc in addition to the title. They are requiring that I open have a personal bank account for this loan as I bought it in my name. Should I just transfer what I can to the llc and not worry about the actual bank account? I guessing most people just transfer title and thats it. Let me know what you think is the best way to do this and if I need to even worry about the bank account. thanks in advance 

The title, loan, bank account and everything else like insurance all need to be under your LLC and only your LLC (no insurance polices that list yourself and the LLC). If you have your personal name anywhere mixed in with your LLC you are leaving a door cracked open for your personal assets to be at risk, not just your LLC, should you be sued. If you used a lawyer to setup the LLC, talk with them about the risks of mixing your personal name with the LLC. Generally, if you cant move everything under your LLC, be sure to have a personal umbrella policy as a fallback in the rare chance if that was to happen. Lots of discussion about personal umbrella policies for amounts and coverage already on the forums. Talk with your insurance agent, explain your situation and what you want to be protected against should it happen.

Full disclaimer, I am not lawyer nor an insurance agent.

Originally posted by @Justin Butterfield :

im currently buying a property and after i purchase it I will be transferring the title to my llc but the banker is telling me that I can not transfer the loan into a llc in addition to the title. They are requiring that I open have a personal bank account for this loan as I bought it in my name. Should I just transfer what I can to the llc and not worry about the actual bank account? I guessing most people just transfer title and thats it. Let me know what you think is the best way to do this and if I need to even worry about the bank account. thanks in advance 

When lenders try pushing the ticket regarding what you can and cannot place into an LLC I have seen many investors use a Land Trust to work around the issue. The main issue with banks is that they will threaten the Due on Sale Clause - calling the note if you transfer it out of your name. One of the transfers that is excluded from the Due on Sale Clause is through a Land Trust. Essentially you purchase it all into your personal name, then transfer everything into the Land Trust which is protected by the St. Germain Act as an estate planning tool (inter vivos trust.) After the transfer is complete you can assign the LLC as the beneficiary of the Land Trust to implement to liability protection. If the bank still complains you have the paperwork that shows that ownership has not "changed name," but that you are only rolling it into your estate planning structure.

There are some additional benefits to using a Land Trust, but this is the one most applicable to the situation you are facing. The main issue with what the lender is proposing is that you are essentially piercing the corporate veil by using your personal name to secure the loan for the business. In court it is your responsibility to prove that the LLC is functioning independently, so if an attorney can show that you are personally tied to the loan then they can implicate your personal assets in the lawsuit and work around the LLC. While what the lender is requesting may be good for their security, it is placing you at risk.

@Justin Butterfield First of all, what kind of loan are you getting? FHA, Fannie Mae, Freddie Mac, etc? If it's a Fannie, you can transfer to a single member llc with no due on sale issues.....it doesn't matter what account you write you checks from. And yes, in any case the loan will remain in your personal name.

@Justin Butterfield , echoing what @Wayne Brooks said: If the bank is keeping the loan, the underwriting guidelines are theirs to decide, including identifying which transfers are exempt from a Due on Sale clause.  On the other hand, if the bank is selling the loan (ideally to Fannie), then read my Blog post and educate the bank: How to Transfer Property to your LLC without fearing Due-on-Sale

thanks everyone for the advice and @Wayne Brooks this is a conventional loan and ill have to check on weather it is Fannie Mae or Freddie Mac. If I remember correctly one of them is capped at 4 loans and the other is 10. This bank said they do up to 10.