Bank Won't Let Me Hold Title As An LLC
I have Flagstar Mortgage. I called their customer service division recently and told them that for "estate planning purposes," I would like to hold title as an LLC. I stated that I would personally guarantee the note. I got an earful.
I was told that I could not do that under any circumstances--that Fannie Mae had a restriction against transferring title to an LLC and that I would trigger the due on sale clause.
I'm not sure why the bank is objecting to the transfer, particularly since they're covered if I personally guarantee the note. (They're being kind of lame.)
Has anyone else had this experience?
Has anyone here REALLY found a lender that will permit this kind of title transfer? If so, who is it?
Second, I own property out of state and reside in CA. Providing I can eventually find a way of going to the LLC, if I setup an LLC in the state I own property in, but manage it from my "home office" California, do I have to qualify to do business both in the state my property is located in and in CA? E.g. do I have to get business licenses in both states, qualify in the LLC as a foreign LLC in my home state? How does that all work?
Would you consider putting said property in a land trust and willing it to your LLC?
I have a delaware corporation, however, I'm looking to buy in the state of NY. My lawyer told me; I would have to file papers as a foreigh entity. In NY, the fee is $250.00 as a foreign entity. I have never personally come across such a situation as yours.
I too ran into this problem. I bought my duplex under my and my wifes name. Morg. Co. wouldn't let me title it to the LLC. So, whats wrong with a quit claim deed? Any Advise?JIM L.
Hello iforsyth,
If you would have attempted to pruchase the property under the LLC's name then you would have found there were different rules that apply when compared that of a simple residential loan.
You would have been required to obtain a commerical loan, as well as completing a few more tricky legal papers in order to make the purchase. More than likely you would have opted to make the standard residential loan purchase.
Therefore, it you attempt to place the residential loan into a LLC the bank is going to object as they did.
Although you don't say WHY you really want the LLC, having it remain in your name alone is NOT your only option.
Smart REI's have been using Trusts for years, placing their RE into their own trusts, the beneficiary of which might well be their own LLCs.
Do a search for "Garmin St. Germaine" & Trusts, and you'll find enough reading for a month, and you'll learn how this all works, legally, without the bank's having ANY say about your doing so.
Basically, it's completely legal under GStG Federal Law for you or me to deed our RE into our own Trust, and this does not trigger any DOS clause.
Then, as has been done lots of times, the trust beneficiary sells & assigns majority portion of his interest in the trust over to a new owner...and all this is done without triggering the DOS.
Bill Gatten has a company that's been doing these for clients for years, & he calls his "PacTrusts", and his website shouldn't be hard to locate. Although it's not necessary to use one of his, he does know a lot about the process and is set up to do this for new clients.
Say "that's ok" to the bank, and walk out with a grin on your face.
1. Put the property into a land trust (i.e. Bob smith land trust). Use yourself, your company, or someone you trust as trustee, yourself as the grantor, and yourself as the beneficiary
2. Assign beneficial interest to your LLC
Problem solved.
The bank has no way of knowing that your LLC now owns the property and you have the liability protection. The ONLY way to find out who owns the property is to sopoena the trustee to court.
Treat it as though it's a "sub. to" deal.
Quitclaim activates the due on sale clause if the lender doesn't give permission for the title change. Yes, I know the chance of the lender calling the note is miniscule, BUT:
I am giving the lender a "loaded gun," which I don't like.
Interest rates are starting to rise. Note calls could come into play.
The land trust trick is technically doing the same thing as a quit claim, except you're "hiding" stuff from the lender. This seems to be even more dangerous if your lender should (somehow) ever find out.
What happens when you refinance and you have title in an LLC's name?
Why is it that I have to violate my lending agreement in order to obtain some measure of asset protection? I have to accept liability to get liability protection? (That's really lame!)
If anyone knows of "the small bank or mortgage company" that is elightened to the asset protection that LLC's offer and will let me transfer my property after I've closed, please let me know who they are. As long as their rates are reasonable, I will give them 100% of my business and market their bank to others. Gurus love to write about the lending institutions that are willing to this for you after you've bought a house in your individual name--yet I have found none.
Quote:What happens when you refinance and you have title in an LLC's name?
I do not believe your statement is true. The property is in a land trust, which you governed and it's beneficiary is the LLC (which you likely own too). As someone mentioned earlier, your technically setting up a sub-2 deal for yourself. Someone correct me if I'm wrong.
From the banks point of view, it is exactly this liability protection that they do not want. If the LLC defaults on the loan and has no assets, they cannot get anything from you. All they can do is foreclose on the property and report it on the LLC's credit report. The Land Trust idea is probably your best route.
iglooman
That's not true. If I personally guarantee the note, they can come after me individually and wreck my credit. The note is still in my name. Only the title is changing...
I recently contacted Union Planters Bank and they would allow me to transfer to a LLC with my personel guarantee. I plan to within next few months on a couple of loans I have with them.
Could someone enlighten me as to exactly what "liability protection" they think a person is getting by putting a property into an LLC (especially a residential property)?
Frankly, I generally don't see property owner's getting any liability protection even on commercial properties that are held in entities. Lender's almost always have human beings sign as environmental indemnitors and guarantors on the loan.
If some idiot climbs your fence and hurts himself trying to rob your property, he cannot sue you personally for your personal assetts. He may take your business, but he cannot take your home, vehicles...
It's a whole lot easier to start over from there than from square 1.
Yes, exactly. My understanding is that you're only liable for what you've put into the business and the existing assets of the business. Given this point, the trick is to form an LLC for each investment property you own. That way, the most a tenant can sue you for property wise is the 1 house and not the other five you may own. It limits your exposure.
I do wonder though, if you're a "small time" investor and own 1-2 properties and you're total assets are under a million if you're not better off with higher limit insurance and umbrella policies.
Filing for LLC's for each property could become financially prohibitive. There are a couple of people on this site that can tell you how to place the property in a land trust very inexpensively. Then put the Corp or LLC in control of the land trust.
Basically, you need to take these ideas and present them to a good attorney for professional advice.
Just my opinion. I could be wrong.
Ronnie
I think the above correspondance covers it all. www.Interesting.Typical American Banking Institute thinking. Every time you worked in a bank even in summer only, they suggested that you take courses presented by this entity. The item I remember was that when a Lending Insitution have you as a Borrower on a Loan secured by your Home, they are happy. They have an edge, you and your home the last items that slide when and if you go down the economic tube. Any movement away from this divine status into an LLC, Land Trust, Commercial Entity worries them, they think that you are getting set to defraud them in some way.
Bankers like Cops seem to think that it is them against the multitude.
I learned a long time ago never take your HP 12C Calculator with you when you go into the bank to negotiate a loan. They seem to feel better and more secure if you have to take your shoes off to count over 10. I think what you are experiencing is this Bankers Attitude wanting everything as simple as possible. You would assume that banks would foreclose judicialy so they can obtain a judgement. so they can pursue your other assets if the property is insufficient to recover the full loan and costs. How long has it been since you have seen that? I cannot remember.Here in California a Trustee Foreclosure is only to the property itself. When the bid retires the unpaid balance of the loan that is the end of the remedy.
The best series of transfer I ever saw to avoid a due on sale clause is the following. Man bought a house and raised 80% of the purchase price by borrowing from a bank. Upon recordation of title he waited 30 days then cut a deed to a Family Trust, waited 30 days and then cut a deed to a LLP. I bought the property from him in a big hurry, his wife was insensed over some small slight like he failed to show up at their wedding. Did the escrow myself under my Real Estate License. Now I had to square the Title Company so they would write a policy of Title Insurance had to square the lender who had a recent graduate from Wharton as the Officer in Charge He knew that something was up. Just knew it. We made him and his many bosses happy by having some friendly investors deposit in the bank their roll over funds. Bought maximum CD's for six month due dates. That made everybody relax and become friends again. Moral, sometimes if you just spend a little time with the players you can figure out what in hell is pushing their buttons. So grab a button and push. Cheers Lucius