All Forum Posts by: Robert Gregg

Hi Lazaro,

Welcome to the group! although I'm a licensed residential lender I'm familiar with commercial lending as well and have colleagues that work in this area. I'd be happy to answer any questions you have on these topics...if I don't know the answer I'll try to find someone who can.

Bob

There are lot's of threads in BP as well as elsewhere on this topic. If you used a residential (as opposed to commercial) loan to finance the property the odds are high that the property cannot be vested in an LLC at closing. If you Quit Claim to an LLC post closing you're violating the terms of the mortgage which is a contractual agreement. Contracts can be broken...you have to weight the risks in doing so. My suggestion is that you research the potential consequences thoroughly before you make a decision ( I would not simply go by the anecdotal comments in this blog). By the way...there are some residential lenders (non-agency investors) that do allow vesting in LLCs. You can search these out yourself ... or find a residential lender that non only direct-lends but also works with multiple outside investors in a correspondent or brokerage relationship (i.e. this will save you the time of doing the research yourself). Also, Commercial Lenders allow this as a rule...as well as allow vesting in other legal entities.

I just want to (re) emphasize what @Christopher Phillips said in his prior message regarding Coop Owner Occupancy...they want their owners to live there (not tenants). Oftentimes renting the units is prohibited. When it is allowed there are strict limitations by the Coop Board. Also...you would be hard pressed to find residential lenders that have a  loan product for Investors buying a Coop.  

There are two main motivators to vest in an LLC (aside from privacy). One is for legal protections (such as liability claims) and the other is for tax purposes (i.e. if the investor in the property is necessarily and actually a legal entity then having the property in the name of individuals might present issues from a tax, accounting and corporate ownership point of view). Attorney's and Accountants have the best answers from these perspectives. Insofar as Conventional Conforming Loans are concerned...vesting in LLCs is simply not allowed when the loan is being originated.

Jason...just wanted to clarify one thing. Commercial Lenders will oftentimes require you to vest in a legal entity, such as an LLC. However, in the case of Residential Lenders ( 1 to 4 unit dwellings) it's exactly the opposite: For Conventional Conforming loans, the Agencies (Fannie Mae, Freddie Mac) will not allow you to vest in legal entities. They require that vesting be in the name of individuals only.

Typically the same is true for residential lending (1 to 4 units) that are Non-Conforming Loans (i.e. portfolio Conventional mortgages). In most cases Non Conforming Investors will not allow vesting in legal entities either (although this is not a hard fast rule ... these lenders can basically do whatever they like, but this is what most are doing now).

Hi Jason. For Conventional Conforming Guidelines, you are able to do a cash out refinance on an investment property after 6 months, however, if the transaction is done within twelve months of the purchase then the valuation will be based on the lesser of the purchase price or the appraised value (at the time of the refinancing). If you made substantive structural improvements/additions to the home, and could document those improvements, it's "possible" that you could do base the valuation on the current appraisal. However, I am having trouble visualizing structural improvements that bring the value to $50 to $60K. For Fannie Mae Investment loans, the maximum is actually 75% for a cash out single family (less for multi family). Finally, my company (as example) will do Conventional loans for less than $50K, however, they can be difficult to do in when the purchaser is buying as a Primary (and I believe Secondary/Vacation)  properties due to "High Cost" rules by the Consumer Finance Protection Bureau. Investment Property purchases are exempt from these rules. However, there is a maximum number of financed properties rule (10 properties) that you have to consider as you acquire more and more properties.

Hi George. I heartily agree with Jessica on the importance of having legal counsel.

For closing costs, one tool that I frequently use on the "buy side" is this one from Chicago Title...

http://www.rates.fntg.com/?brand=Chicago

That tool will give you the detailed fees for title searches, title insurance premiums, endorsements, settlement fees, recording fees. In addition to this would be property taxes due at closing, Personal Representation (Attorney), and other items mentioned by Jessica (above).

If you do purchase using a loan from a lender you should know that for Conventional Loans (Fannie Mae/Freddie Mac) and Government Loans (FHA, VA, USDA) that vesting in an LLC is not permitted. Only vesting in the names of individuals is allowed. Commercial Lenders will typicaly allow vesting in LLCs but the loan terms are usually much different from Residential Loans.

I work with a number of realtors covering Monmouth and Ocean Counties. I'd be glad to give you some referrals.

Chris, I did some additional research and just wanted to add a few more thoughts...following link is to the Fannie Mae guidelines page

https://www.fanniemae.com/content/guide/selling/b4...

It says that if the transaction is a limited cash out (basically a refinance for new interest rate), post purchase, within 12 months that origination appraisal could be used. So it seems to suggest that if the appraised value (at the time of purchase) were higher than the purchase price then that value could be used under these circumstances (i.e. in the case of a refinance). 

If it is a Agency Loan (Fannie, Freddie) or Government (FHA, USDA, VA) they follow these rules. Most large lenders, especially the banks, will follow the same rules for their portfolio (Non-Conforming) loans as they do for the Conventional Conforming loans. There may be some lenders that have other rules (and rules do change). But to the best of my knowledge the 1 year rule is still applying.