Lender REFUSES mortgage payments from LLC business account

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Lender REFUSES mortgage payments from LLC business account

Matthew McNeil
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes

My lender is warning its clients that it will no longer accept payments from a business bank account, which is how I’ve been paying the loan since its inception many years ago. They insist I must pay using a personal account starting next month.

If we don't accommodate the demand, they're warning its clients the consequences will be as follows;
1) Reject all payments 2) Add a late fee 3) Report non-payment to the credit reporting agencies

To require this of me would force me to be in violation of the legal requirements regarding LLC’s mixing of funds between personal and the LLC business accounts. Thus, they are exposing me to liability.

I feel the lender may be in violation of the law for the above-mentioned reason. Furthermore, my loan was conventional and sourced from Fannie Mae which recognizes the legitimacy of a Quitclaim between the mortgage holders (me and my wife) and the LLC; so long as the LLC is controlled by me and my wife . In other words, Fannie Mae views the legitimacy of the LLC as a legal entity and I don't feel Fannie Mae would agree with this demand of the lender.

It seems to me that I can challenge the lender advising that I’m not obligated to honor their demand, and to force me to do so would empower me to file a formal complaint with the state Attorney Generals Office.

Any thoughts or advice?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  
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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y

    Wow, that is a weird one.  I wonder if there are any loan officers or bankers who can comment.

    1Reply
  • Nick BelskyBusiness Member
    Lender · Orlando, FL · Member since 2021 · 1k+ posts · 704 votes
    5y

    Yeah, weird.  But banks update policies all the time.  The questions are; do you love this lender so much that you are willing to file a complaint, go to court (potentially), have your credit hit, etc... or is it better just to refi out into another lender?  I've refi'd out several times due to policy changes but I've also adapted...  Got to weigh your options and determine how valuable your time and effort is to you.

    Nick Belsky

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  • Doran Summers
    Lender · Chicago, IL · Member since 2015 · 608 posts · 70 votes
    5y

    Can you just move the funds from your business account to personal account and make the payments from there if you already got a account setup with the Bank?

    1Reply
  • Doran Summers
    Lender · Chicago, IL · Member since 2015 · 608 posts · 70 votes
    5y

    Also, don’t understand why they would reject payments especially after the pandemic.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y

    is this coming from the servicer who represents the entity that bought this note ?   I suspect this note is not really held by a particular bank ?? 

    this is where some sub too buyers can get caught.. and how lenders handle those that do sub too.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

    the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  
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  • Matthew McNeil
    OP
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    5y
    Originally posted by @Nick Belsky:

    Yeah, weird.  But banks update policies all the time.  The questions are; do you love this lender so much that you are willing to file a complaint, go to court (potentially), have your credit hit, etc... or is it better just to refi out into another lender?  I've refi'd out several times due to policy changes but I've also adapted...  Got to weigh your options and determine how valuable your time and effort is to you.

    Nick Belsky

    Thanks Nick. Interesting. I may end up doing a refi to get out of this dilemma. 

    0Reply
  • Matthew McNeil
    OP
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    5y
    Originally posted by @Jay Hinrichs:

    is this coming from the servicer who represents the entity that bought this note ?   I suspect this note is not really held by a particular bank ?? 

    this is where some sub too buyers can get caught.. and how lenders handle those that do sub too.

    Jay, yes, its from the originator of the loan - Flagstar Bank. 

    0Reply
  • Matthew McNeil
    OP
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    5y
    Originally posted by @Jay Hinrichs:
    OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

    the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  

    Jay, Noted. Good suggestion. Actually, the bank's issue was autopayment from a business account, which is how I've always paid it. They won't accept auto pay from a business account anymore. They will however accept autopayments from a personal account.  Not sure why  ????

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    Did they make the loan to your business?? If they did, they should take the money from your business. Talk with the lender. There may be other things going on. Does not sound right to me.

    0Reply
  • Russ B.
    Investor · Cleveland, OH · Member since 2017 · 319 posts · 330 votes
    5y
    Another alternative (even if it's kind of a pain) might be to write them a check out of your personal account and then expense it back to the LLC.

    I'm not a lawyer, but to me that seems like it may be enough to not be commingling of funds, since the LLC is still behaving like its own entity?
    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Matthew McNeil 

    "To require this of me would force me to be in violation of the legal requirements regarding LLC's mixing of funds between personal and the LLC business accounts."  The reality is that you are already comingling personal with business. The loan is in your personal name and you are making payments on a personal loan with a business account. It would no different if you just paid the mortgage with a personal check and then wrote a corresponding check each month from the business account to your personal account. That is what I recommend you do. As I said, your corporate veil is already pierced by having a personal mortgage on the property, you just didn't realize it.


    "To require this of me would force me to be in violation of the legal requirements regarding LLC’s mixing of funds between personal and the LLC business accounts."     There is no law that says you can't comingle personal and business funds in an LLC. It is just a bad idea that opens you to risk of an attorney piercing the corporate veil. I don't think that requiring a loan holder to pay their own loan is illegal. It can be risky accepting payment from someone other than the loan holder. The person/entity who made the payments could just say they were unauthorized and cancel the checks. It would be hard for the mortgage company to dispute because XYZ LLC is paying John Smiths mortgage and John Smith is the one who they hold the mortgage contract with. They would be forced to accept the reversal of payment and would have to go after John Smith for payment.

    The Fannie Mae changes allowing LLC only applies to mortgage originated after June 1, 2016. You stated you originated the loan "many years ago" so was it less than five years ago? Even if transferring title to an LLC is allowable, it doesn't mean they have to accept payments from an LLC for a personal loan. The mortgage is retained in your personal name. In other words, the property, not the loan is transferred.

    I wouldn't challenge anything. Just pay the loan from your personal account and reimburse out of your business account. You will have no different protection than you currently have. 

    9Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    You keep saying they wont accept autopay but what about one-time ach or check? It would be more work though.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Matthew McNeil:
    Originally posted by @Jay Hinrichs:
    OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

    the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  

    Jay, Noted. Good suggestion. Actually, the bank's issue was autopayment from a business account, which is how I've always paid it. They won't accept auto pay from a business account anymore. They will however accept autopayments from a personal account.  Not sure why  ????

     There have been high profile fraud cases where an employee of a business will pay personal bills with their employers accounts. Usually these people work in accounting and it can take months or even years to catch the fraud. Banking laws allow the business to pull back all those fraudulent funds, going back a year or more in some cases. If the account is in the loan holders personal account name, the bank can easily dispute attempts to pull back funds.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y

    @Matthew McNeil ok so it wasnt the mortgage but I did have a local bank say they would not take zelle from my tenants which is electronic but so far no issue, one notice and then nothing.   Will they take it from a business account at their own bank? I like @Jay Hinrichs suggestion or you can just go old school and write checks. Might be easier then refinancing. 

    1Reply
  • Aaron SmithPro Member
    Spokane, WA · Member since 2020 · 29 posts · 22 votes
    5y

    Have you considered using a different entity, like a land trust? Make sure the account name looks like something that isn't a corporate entity and it may get through. There was a BP podcast episode where they did this. I think it was the one with the foundation issue investor down south.

    0Reply
  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    5y
    "To require this of me would force me to be in violation of the legal requirements regarding LLC’s mixing of funds between personal and the LLC business accounts. Thus, they are exposing me to liability."
    ------------------------------------------------------------
    What "legal requirements" are you referring to?

    As others have said, try to talk to someone at the servicer/lender and find out why they are making the change.

    Right now, as I understand it, you have a mis-match in legal entities: Your LLC has title to the property, but the mortgage is in your name. Problem is, the LLC is paying the mortgage. The servicer/lender has its own audits to contend with, and a stranger paying your mortgage raises a flag to your servicer/lender inspectors, and puts the onus on the institution to show that you and your LLC are jake. Far easier to put the onus on you: Your check, not the LLC's check, goes to your mortgage.

    Helps prevent money laundering, too.
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    Who is the insured of the property, you personally or the LLC?

    Fannie Mae regulations are minimum standards.  Any lender can impose more restrictive terms than Fannie Maes minimum. 

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Jay Hinrichs:
    OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

    the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  

    Exactly.  Or have a member meeting and adopt an exception which is logged into the minute book.

    Or file a complaint and take it to court.  Maybe a strongly worded letter to the prez himself. LOL

    0Reply
  • Kristen Williams
    Property Manager · Wichita, KS · Member since 2015 · 73 posts · 36 votes
    5y

    I was JUST going to post a new thread, about the difficulty in this seller's market, to obtain a personal home loan using income from an LLC. They are making it increasingly tough to qualify, even if you do; the amount of hedging and effort we are required to make is making it less simple to make offers. I recently lost 2 bids because it was taking so long to get the lender's underwriters happy. I was told quite frankly that if you offer cash or a conventional mortgage you will be put ahead first. Years ago, it was the hard-working business owner who was favorable with the bank, but now, it feels like a beggars market. We shopped for other lenders but there's so many; we have pretty much decided it's not worth overpaying for higher priced property and to wait it out. And in your situation Jay, it seems shady for them to change the terms in an existing agreement; someone is money-hungry, like many we are seeing these days.

    0Reply
  • Jeyo PunnakottilPro Member
    Rental Property Investor · Houston, TX · Member since 2019 · 141 posts · 48 votes
    5y

    @Joe Splitrock most lenders wont let you close a loan in an LLC @ first so there is no option left but to close the loan in your personal name and then quitclaim the ppty to an llc.I was scrambling a yr before with this issue went to 8 lenders no one will close the loan in an LLC name.How can it be be justified @ this point that corporate veil is piereced.Then that means there is no way asset protection and bankers are purposefully pushing you to do it.I am not a lawyer ,this is not a legall advice but just sharing my thoughts.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y

    Some thoughts (I am not a lawyer):

    • if the mortgage is in your name, but the property is in LLC, I suspect you already are comingled and a good attorney would pierce your personal protection from having an LLC.
    • Umbrella policies have nothing to pierce and may be cheaper than a refi if the primary purpose of the refi is to maintain personal protection (which I believe already does not exist). I like having the umbrella policy. nothing to pierce and if we get in a big suit, the insurance will be providing legal assistance seeing they are on the hook for the first $10M (minus any deductible). We have our LLC just for superficial appearance. We do not expect it to provide any real protection if scrutinized because the mortgages are mostly in our name (3 are not).
    • I think it sucks when lenders' rules change.  I also hate having our loan sold.  We set up auto pay, etc.  Note the banks charge for many changes that can be done electronically that take less that a couple of minutes.  Yet we have impacts from their changes or the selling of our loans and we have to deal with it without compensation.  Early this year we had 6 loans sold in the same month (I think it was in February, fortunately all to the same holder so it was not as difficult as if each was sold to a different holder).  A couple years ago our bank stopped allowing cash transfers into our account.  Some of our C area tenants did not have a bank account and had to work out a means to pay (we accept direct transfer to our account, Zelle, and check to PO Box).
    • I suspect fighting this will not be worth it.  I would like to see you win such a battle, but I think it is unlikely.

    Good luck

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Joe Splitrock:
    Originally posted by @Matthew McNeil:
    Originally posted by @Jay Hinrichs:
    OK open and account that is owned by your LLC and just has your name on it for check writing purposes we do this alot.

    the LLC owns it we name the account what we want and put the personal name on the checks but its run through the LLC books as hte account is owned by the LLC..  

    Jay, Noted. Good suggestion. Actually, the bank's issue was autopayment from a business account, which is how I've always paid it. They won't accept auto pay from a business account anymore. They will however accept autopayments from a personal account.  Not sure why  ????

     There have been high profile fraud cases where an employee of a business will pay personal bills with their employers accounts. Usually these people work in accounting and it can take months or even years to catch the fraud. Banking laws allow the business to pull back all those fraudulent funds, going back a year or more in some cases. If the account is in the loan holders personal account name, the bank can easily dispute attempts to pull back funds.

    Yup my old timber partner this happened to him to the tune of 300k large.. 20 year employee.. 

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  • Jim Spatzenfeld
    Investor · NorCal · Member since 2015 · 282 posts · 240 votes
    5y

    I have a Flagstar loan and just logged into my account. I always pay from my LLC account as well. On their website they say you can pay from your LLCs online banking (or write a check from your LLC). I guess I will have to setup Flagstar with my LLCs bank online bill pay. I might first try to see if they really refuse the payment. How do they even know if it's a business account?

    0Reply
  • Deanna O.
    Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes
    5y

    Is it possible that they are just flagging "mismatch"  accts? I would also wonder if the "i" dotting and "t" crossing is to get loans gussied up to sell, or if they are getting ready in case they have a flood of foreclosures. Bad paperwork was a problem in '08, so the banks would have learned. Drat if they are though, because do I have one loan that is a mismatch.

    0Reply
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