Commercial Policy Claim : Lender Calling the Note Due

3 Replies

Here is my situation: hail damage and upcoming claim for 20k of repairs on a rental home. Insurance policy is a commercial policy under my LLC. When the insurance company issues the check it will have the LLC name and the mortgagee lender name - both have to endorse the check.

My big question is if the mortgage lender will endorse the check. The mortgage is in my and my wife's name, not the LLC name.

My one hope: the mortgage company has requested and been sent insurance verification documents showing that the LLC is paying the insurance.

My concern is that they won't endorse the check because it has the LLC name on it instead of me and wife and worse off, that they would call the loan due because I switched title over (they've already told me that this loan is not eligible to amend to the LLC. And that it's too old to qualify for Fannie's somewhat recent change that allows one to transfer title (that only goes back to some month in 2016 - my loan originated prior).

I haven't called the insurance and asked them straight out if they would endorse a check that has the LLC name on it because again, I don't want to raise any flags and then have them call the loan due. The reason I was able to get the commercial loan is because the property is titled into the LLC. Maybe or maybe the mortgage lender doesn't know I switched over title, but you would think that maybe they suspect it because an LLC is paying the insurance premiums. The could easily find out by a quick data records search.

Thanks for considering!

@Rob Carey won't really know till you go through with it. Lenders are not in business to take property in fact they prefer not to. Some might care more than others but ultimately they want your payment. Due on sale clause/acceleration clause requires 30 days notice to you should they choose to take that route. If that happens then just change it back to where it belongs. I highly doubt the insurance will make the check our to just your and your wife. They don't know who else might be apart of the LLC and cutting a check to some of the members and not all is a big no no.

Thanks Nicholas.  I have decided to deed all my properties from that mortgage lender back into the original names before making the insurance claim.  Then I will explain to the mortgage company that I have a commercial policy that required llc ownership.  Once the claim is all finished, then I will deed them back to the llc.

It probably isn't necessary to change title, but is certainly the safest route to avoid any possibility of calling the notes due.

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I am not sure all of this moving property titles back and forth is the best route. All of this will be of public record and may look worse than simply inquiring with your lender if this was an issue. There is probably a "due on sale" clause in your promissory note which the lender may technically be able to trigger due to any transfer, but I doubt it. Having the property in an LLC makes sense not only for you and your wife but also your lender. Lenders understand that tax and liability issues associated with rental properties. An LLC not only protects you and your wife on a personal level but also protects the individual sponsors of the lender's note (you and your wife). I think you could simply let the lender know you moved the property to an LLC that is controlled by you and your wife (presumably) and the lender will probably be fine.