Mortgage in my name but Property Title in LLC name?

29 Replies

Long story short. I got a Wyo LLC in order to have anonymity.

I want to buy the houses in the name of the LLC and not my name. I have been told that is ok, even though the properties will be in another state and not Wyoming, because that income from rentals will be "passive". I have also been told that in order to do fix and flips in my state, I ought to get yet another LLC in my state, because that is "active".

I was referred to a Loan Officer by my realtor.

Now the Loan Officer tells me that the mortgages for the properties that will be bought and held for rentals have to be in my name and not in the name of the LLC, but the title to the properties will be in the name of the LLC. And I'm like, What?? How does that preserve my anonymity if the liens on the properties are in my name? Cant people look up in a discovery process, heaven forbid, that I am associated with the liens on the properties and it doesn't preserve my anonymity. What's the use of having an anonymous LLC if they can discover who I am by looking up the liens? It doesn't sound right to me. Should I be looking for another loan officer?


Thoughts?


Did you ask your loan officer for the rationale?

My guess is your LLC has no income, no 6 months reserve PITI and no assets, so it does not qualify for a mortgage. You might want to talk with a bank that offers commercial loans as you will probably have more success than with a residential loan officer. You may still be asked to co-sign with the LLC or provide a personal guarantee for the same reason though.

@Ed Goble

So, I guess you aren't going for the LLC for asset protection...

The issue you are running into is legal entities, such as LLC's, are not eligible for conforming residential loans. LLC can only qualify for commercial loans. Just like some 90% of real estate agents are residential agent, almost all loan officers are residential. They don't know how or do commercial loans. Find a commercial lender, perhaps a small/ local bank, etc to get the loan

Another thread on bp one person mentioned a few national lenders specializing in real estate. I think there were something like corvest , Visio, and I can’t remember the third.

I hope this helps. Good luck.

@Ed Goble

Oh, it might vary by State... but it's not a matter if the income is passive or active. You really should have a LLC formed/registered in the State the property resides. Remember, the LLC's are formed by State so they have no legal standing outside their home State.

In your case, now that you have formed your WY LLC, form a LLC in the state the property is located and make the WY LLC the member. You keep your anonymity intact.

Talk to a few qualified professionals. Good luck

Like David said. Regular banks do not do mortages to LLC unless you get a commercial loan. Commercial loans have different terms than conventional morgages. The only way around this is to buy the property under your name, then once mortgage is all set an done swich deed to your LLC withiout telling your lender. You, however, run the risk of having to pay the loan in full if the lender finds out and decides to activate the accelerations clause which says that if the property changes owners then the loan must be paid in full. Most banks will not care as long as you keep making your payment. The clause is there to protect them and allow them to foreclose the property even if has changed owner's.

thank you.  Great perspectives!  I will have a talk with my realtor to adjust her expectations and tell her that I may have to switch to a lender, as you say, that does commercial.

The LLC in my state is something I suppose I should get my CPA to help me out with.

It seems that there are a number of details that I keep finding out about along every step of the way that make it complicated.  I hope I can get these all ironed out and do this the right way.

I may have to find a real estate attorney to do it right, but the one i was talking to yesterday wants me to retain him, and won't give me advice just by paying him hourly.  I assume that is probably standard procedure, but I don't think I need more than an hour or two right now.  But the further I get into this, the more fees and this and that and the other I have to figure out.

Thank you.

@Mike Lee, thank you also for the suggestion of hard money lenders.  I have looked into this a bit too, but I have really good credit, and don't have a problem getting credit myself through the conventional means, if only I can get these wrinkles figured out, but I have actually already been talking to a few hard money lenders as I have gone along in the process I have been entering into, and a few have given invaluable advice.  But for just getting started in this, I haven't seen the need yet to go that direction until I have a lot of properties.

The answer may be as simple as making sure I have an LLC in my state and going to a commercial lender.

"Now the Loan Officer tells me that the mortgages for the properties that will be bought and held for rentals have to be in my name"

LLCs have very poor penmanship and can't sign. The issue is the bank needs recourse. The LLC can own it, but you're probably getting a trust deed which allows the bank to come after the property and then you personally for any deficiency.

Besides, in OR the operating agreement is posted for LLCs in the registry most of the time.  So LLCs don't' give you total anonymity.

@Ed Goble you have been mislead on a couple fronts. In most states, LLC are not anonymous. Sometimes you can register through a law firm and they can hold the name and address of registration. That can give you some anonymity. For example, here is a lookup for the owner of LLC in Wyoming. Look up your LLC to get an idea what the public can see:

https://wyobiz.wyo.gov/Busines...

You can get better anonymity through a Trust. 

As far as lending to an LLC, you cannot take out a traditional conventional mortgage with an LLC, which means using commercial lending. Usually commercial lending has higher interest rates and a shorter fixed term. For example, you may get 5 years fixed with 20 year amortization. If you hold the financing in your personal name, you can get around this, but then you remove personal-business separation which can "pierce the corporate veil" meaning you can open yourself to liability.

If you are doing fix and flip, it is better to have a separate LLC for that business. If you put everything in the same LLC, it means any lawsuit against the LLC can go after other assets within the LLC. You want to keep them isolated. I wouldn't recommend an LLC for every property because it gets complicated to manage, but putting 2-4 smaller properties together as you scale makes sense. Any larger property should be inside it's own LLC.

@Steve Morris , thank you, I suspect that you are correct as well that the lender wants to have recourse if things go south.

I think though, after all, that I cannot afford to not talk to a lawyer and just do the retainer in the first place, even though it will be expensive.

@Joe Splitrock , I do have a trust (a regular one) already that owns the Wyo LLC. Are you suggesting another trust or perhaps another specialized type of trust though to directly own the properties that I was thinking of putting under the LLC?

Originally posted by @David M. :

@Joe Splitrock

I tried your link. Wyoming doesn't provide who is the owner of the LLC. It only provides the registered agent. How does this affect the anonymity?

I didn't know how Wyoming works or how your LLC was registered, that is why I said sometimes it can be held through someone else. In many states, you can just look up the name and often people even have their home address listed. My point was just to check what level of anonymity you really have.

@Ed Goble , the goal of anonymity for an active real estate investor is really a unicorn.  It may sound nice but is not possible if you are active.  The trust is that none of the big movers on this site use anonymity.  There is a reason for it.  The only ones touting anonymity is the folks selling asset protection.  If you negotiate and sign the buyers offer, if you sign documents at closing, if you advertise for tenants, if you do the lease signing, if you buy the insurance, if you write the checks, if you call the plumbers or electricians to fix problems, if you sign the tax returns, if you open the bank accounts, if you sign the listing agreement with a property manager, the odds of your remaining anonymous in the event of a serious lawsuit are practically zero.  Discovery of production of documents, interrogatories, depositions, etc. will show that quickly.  The good news is that LLCs and other entities provide liability protection that really works if you follow the rules.  If you don't follow the rules anonymity doesn't matter anyway.

@Jerry W. , I think this perspective is invaluable.  You are absolutely right, I think, after all of my interactions and personal meditations on this. My intent is certainly to learn the rules to do things right so that the liability protection that is available is effective.

I think now, from this point of view, since I already have much of my legal structure in place, the only difference between commercial, private and residential loans that I will choose is the ones that give me the best terms at the time.  For example, I'm told that I can only have 9 residential mortgages in my name, and after that I need to find other types of financing.  Thank you

@Ed Goble

Yes I believe it’s something like 10 residential loans.

However, you spoke about having your legal structure in place... unless your professionals are saying differently, I believe you are going to want to have the mortgage and Title under your LLC. Having them split doesn't offer the full asset protection you'd be looking for. There is a fair amount that goes into maintaining/protecting your corporate veil.

Good luck.

@David M. , it would probably be ideal for the title to be under the name of the LLC, yes, but if the terms for the mortgages are dramatically different, then it may make more sense to go to residential mortgages at first. For example, since my FICO score is so high, there is no reason that I cannot get a really good interest rate on a residential mortgage. Already, some that are replying to me privately are telling me that 30 year fixed commercial terms are available.. Are the 30 year fixed commercial mortgages typically much higher interest? if so, that may sway me toward residential mortgages for my first properties, and go commercial mortgages later.

Another issue however is that if I get residental mortgages, I still will want to try to quit-claim-deed them to my LLC after closing, (or find someone that will let me put the LLC name on the residential mortgage right when closing, which may not be possible).  However, the advice I am hearing from most people is that quit-claim-deeding after closing to the LLC is very common, and nobody seems to ever had the mortgage company come back and demand payment because of the due on sale/transfer clause.  So, perhaps I could live with the mortgage being directly in my name, if my identity isn't really protected all that much anyway.

@Ed Goble

Consult some qualified professionals...  yes, many people quit claim deed the Title.  However, haven’t heard results of a lawsuit...

While the Due on Sale clause maybe not be called in, you have the Title and Mortgage split ownership/responsibilities. Meanwhile, which bank account pays the mortgage — think about. Aside from co-mingling, at what point does your LLC become your alter-ego. If this was an arms-length transaction, would one purchase a property with effectively a subject-to purchase without any signed paper?

In my opinion, there is too much there to pierce your corporate veil thus making all the expense/overhead for having the LLC's moot.

I was a little quick (on my phone here..). Make any sense?

Yes, I plan to talk to some real estate lawyers but have to get an appointment set up tomorrow. Yes, what you say makes perfect sense. And this has also bothered me about payment of mortgages, obviously probably a question for a lawyer: Can the LLC directly pay the mortgage if it is in my name? If it cannot, and I withdraw the money to pay it, then is it considered income and taxed even though it was not really income to me, but a business expense?

Furthermore, I am already having problems knowing what to do about using my HELOC on my primary residence for a down payment on properties, in terms of how to pay off what I am going to borrow from the HELOC (i.e. is it me or the LLC that pays off the amount I borrowed from the HELOC), and how to avoid comingling in these cases. Because how do I distinguish for tax purposes what part of the HELOC was used by the business, and what was used for my personal life and needs? It is clear to me that money has to be deposited in the LLC bank account in order to pay for things associated with the LLC. But if that money is coming from personal funds (and a HELOC in my name on my primary residence is basically my personal funds in a sense), doesn't this mean that I am lending money to a different entity, even though it is still kind of.... me that I'm lending to? But in the Universe of taxes, the LLC is different from me (my personal self) I think, or ought to be. Yet, to pay off that HELOC, why should the money that comes out of the business to pay that off that HELOC be taxed as if it is income? That doesn't seem just to me. It should be considered the payment of debt from one entity to another in the tax universe. In essence, I am lending my LLC money from my personal HELOC, and it should be treated as a debt payment to me personally from the LLC to pay off the HELOC, and not taxed as personal income (even though I am not personally charging my LLC interest on that debt, but it should still be treated as an interest free loan of a sort for accounting/tax purposes).

Yes, I have lawyers and a CPA that need to answer these questions.  I realize this.  I'm just thinking outloud about yet another issue to be dealt with.

@Ed Goble

Yeah... you are getting it..

Just realize that as a single member LLC, the fed irs considers it a diregarded entity. So for "tax" purposes it's doesn't really matter... but, its more about legal matters since you need to make sure money flows from account to account correctly to protect/maintain your corporate veil. Make sure you understand who you are asking what (legal vice accounting).

Basically, what you are doing is really “complicated” which is why the “best” way would just keep it simple.  There are legal ways to address what you are saying which may or may not make your taxes/accounting worse.

Sending money to your LLC is basically capitalizing, but the LLC is supposed to stand on its own. Apparently, under capitalizing the LLC can be "bad" too in some cases.

Yes, the LLC/mortgage question basically is no. You need to create a legal agreement.. which i dont know if it creates another proble...

Good luck with your meetings.

@Ed Goble , just a quick thought from me to run by your attorney and accountant. You buy the property and get the mortgage. Your LLC holds a meeting and buys the property from you at the same price. There is a written agreement that it will assume the loan you took out. That is done all the time in real estate as a wrap or a sandwich depending on how you do it, if you sold it again. I have even done it myself with a separate party. It is not uncommon. The LLC agrees to hold you harmless from any liability of not paying the mortgage. Be up front with your bank, heck even give them a copy of the written minutes you made from your meeting. Does that help? By the way I would use a warranty deed to transfer the deed to keep the title insurance in play.

The LLC will not give you anonymity. All deeds are recorded and can be viewed by the public. So are business incorporations. I believe each state has an online data base where anyone can search by your name to see which companies you own. A LLC is just an added extra step to keep people from seeing that you own the house, but it's not going to stop someone from finding out.

Will,

While I agree that very few entities can truly be made "identity proof," in Indiana, with the right party(s) involved,  you can keep your name off the registration as an incorporator or being listed as a principal.  If you select an attorney to be your registered agent, you can use attorney-client privilege to mask your identity that way as well.