Banks hoarding MY money.....

Financing, Hard Money Lenders, Private Money
1

So currently I’m looking to refi a property and got into a bit of an argument today with a local lender. To give some background I purchased a duplex about 8 months ago for 24k with an ARV of 65k. Went through the whole process textbook style:

-Quick Closing by purchasing with cash
-Property placed directly into the LLC @ closing
-30 day rehab (felt like 2 years)
-insert tenants
-take a vacation

Now the frustration starts. The intention was to wait for 6-12 months, do a small cash out refi to get the $$ I put in back out, and possibly my deposit for the next property. I still work my 9-5 so I’m very well aware of the market and the lenders situations but for a small 25-30k HELOC or HELOAN I didn’t think I would be necessarily impacted. How niaeve of me. When I approached my local lender today the convo went something like this:

Lender: I’m sorry sir but we can’t offer this loan to the LLC
Me:I know the LLC can’t hold it but I have no problem with offering a personal guaranty from my credit
Lender: No sir, we need you to Transfer title to yourself first. Then depending on your credit score we can work something out.
Me: My credit score is around the low 800’s and your welcome to pull the score. Wouldn’t I still be financially liable with a personal guarantee? I’ve done this before with you guys on other homes?
Lender: Yes sir you would still be liable.
Me: Then whats the problem?
Lender: Sir there’s no problem if your willing to transfer title first.
Me: I think I’ll check elsewhere before I file another deed.
Lender: Sir you won’t find anyone else to help you. :bs

Now at this point I’m pretty P*ssed to say the least. I’ve done this with this lender once before but sure enough after making multiple calls everyone wants me to deed it back to me first. Thus eliminating the purpose of my LLC and opening me up to more risk. Not interested in doing that. The property pulls approx $1200 a month ($800 after “expenses”) and I’ve clearly owned/managed cash-flowing properties for over 2 years. What difference would a small $150 p/m (at 6%) mortgage be? I even have a regular job to cover it worse case!!

My question is, have you guys seen these banks doing the same thing on your refi’s/purchases? Is this “not even with a personal guarantee” trend something that I didn’t read or some new legislation/policy thats floating around? How do you circumvent this WITHOUT losing your LLC? I know I can go HML but the purpose is to get mortgages on record to hopefully eventually build some sort of business credit. Loses its whole purpose if I ditch the LLC!

I find it hard to believe that after we bailed ALL these banks out with the money that “dissappears” from my paycheck they can’t lend to me with a personal guarantee ESPECIALLY in such a small amount.

Any suggestions!? VERY frustrated! :banghead

2

Unfortunately that is the reality of bank lending these days. Why not just transfer the title to yourself, complete the loan, and then transfer it back to your LLC or a trust that you set-up with your LLC as the trustee.

What is your reason for wanting it in the name of your LLC?

3

Thanks for the reply Chris, to be honest it’s the main level of protection that I’ve been taught. I know about the structuring of the trusts and how to transfer title and all that so that is definetly a viable option. BUT, I guess my confusion comes in as to why even transfer title to myself just to deed it back to the LLC. I know they’re saying its necessary to get the loan but (a) I don’t want to play around with the DOS clause in the mortgage as I’ve heard a couple horror stories from local investors who’ve been called out by the banks (b)I feel like I’m wasting my $$ for something I don’t need to do (c) my rationale is telling me that if I take title in my name, mtg under my name and then transfer back to the LLC should I end up going to court I won’t be as protected as I thought (this may be incorrect though).

On my end I guess I’m still fishing for options. With everything changing so fast these days in the Finance world it’s starting to get alot more challenging to identify the next prospect. Without seller financing on some of my properties I’d be screwed… :confused

Is what you suggested your normal practice? And if so do you still maintain a level of legal protection comperable to an LLC?

Thanks again!
-TJ

4

Thoward,
We had the same problem and ended up just buying and holding in our names.

If I understand it correctly, the LLC is to protect your personal assets from a major lawsuit, right? Why not just have adequate liability insurance on your units, and maybe a personal liability policy as well.

It seems to me that unless we are talking about a HUGE net worth, trying to get loans under an LLC is just a waste of time. If you have the huge net worth, you can pay 25%+ down for a commercial loan or cash for the property.

It would be interesting to get a legal take on this from some of the attorneys who respond under “Asset Protection, Legal”.

Furnishedowner

5

Downer, talked to my attorney today and he agreed. WIth the tone of the market now its hard to say if we’ll ever see the banks tossing money at people and companies like they did a couple years back (makes me wished I had started all this sooner). I can do the policies to cover the liability end but from what I’ve been told by lenders your maxing out at around 5 mortgages (and THATS considered alot). Really limits the ability to refi if you need to. Of course you still have options like HML refi’s (not interested in that) and amping things up to put everything in trusts but I was hoping for a KISS type of solution.
Not looking very likely…

Now I’m starting to wonder what I’m going to use the LLC for? Don’t see how I’m going to build credit if I don’t have any assets to collect income and if no credit to hope for and no assets in it whats the use? :banghead

6

Thoward,
Okay, you are not going to see the banks tossing money at people like a few years ago when Countrywide made those 10% down non-owner occupied purchase loans! They were yummy.

But I have seen enough real estate cycles by now to realize that every cycle has its own opportunities.

MORE DIFFICULTIES= MORE OPPORTUNITIES.

When those easy loans were being made, prices were ratcheting upwards and every seller wanted a whole bucketful of money.

Now with financing difficult, and no offers, some sellers will carry the financing so you don’t HAVE to go to the bank at all. You should be able to write your own deal as a buyer. You should be able to get “don’t want 'er” type property at land cost.

Personally, I would avoid HML’s (Hard Money expensive private Loans) unless you are an experienced, savvy rehabber/flipper. Those are scary loans to me. High upfront costs, high interest. Money for borrowers who REALLY know what they are doing.

I came to the same conclusion about the LLC as your attorney. I have one, but it’s basically unused. All property is in our names, almost all credit in our names.

As for liability, we have been sued by tenants twice. Once for a slip-and-fall on an outdoor staircase, then a slip-and-fall on WET GRASS. Both cases were settled by our insurance carriers (who then canceled our insurance, by the way).

The point of this is to quit worrying about the LLC unless you grow into a really BIG INVESTOR.

The second thing is, Thoward, for heaven’s sake, you are in the BEST BUYER’S MARKET MAYBE IN YOUR LIFETIME, so quit complaining about lenders and go out and get some of that good, cheap, tasty owner-financed real estate. You can hold as many as you want!

Tight lending=no offers=motivated sellers=seller financing=great deals.

Furnishedowner

7

Furnishedowner,

Thank you. Defintetly the kick in the A$$ I needed. Actually made me pull out some of my old books to start using some “old” new techniques. I’m currently utilizing the seller financing route and just like you said, the opportunities created out of this down cycle are AMAZING. Guess thats the road I’ll be walking for a while and should that dry out I’ll think of something else…vacant land in the way of future development has me fairly interested these days…

Guess it’s true what they say, “if it was easy, everyone would do it”. Thanks for the advice!!

TJ Howard

8

See if this route will work. Try getting a business line of credit without even refinancing, if its only $25k-$30k. You have great credit, you’re willing to sign a personal guarantee, you have regular income coming in on top of the rental income and equity on the home.

What’s great about this is if you get the loan is not directly attach to the house.

9

Thoward
I have read most of the replys but not all hear, so forgive me if I have something wrong here or someone else has previously said the same.

If I got your posts correctly you only want the property in the LLC to thereby protect yourself personally in the event of ever being sued. That being said you have been asking the banks for a residential type loan which they then tell you that you must deed the property back to yourself to then go forward.

Stop beating your head against the wall and see this for what it is. You really need a commecial loan, however I must for warn you that commercial rates and terms are no where near as good or the same structure as residential.

I think someone mentioned a commercial line of credit, I would agree with that. Otherwise deed it back to yourself to get the residential loan, and then deed it back to the LLC. This should not trigger the DOS as its not a sale, you are the partner of the LLC arent you? You can prove that this was not a sale, but mearly a financial move. DOS is purely a due on sale clause, oh and PS there is no DOS Jail, its perfectly legal to break a DOS as its only contract law.

10

The transfer to the LLC does trigger the DOS as well as any transfer taxes. Without a transfer for value, it is also a fraudulent transfer, which will void any limited liability.

11

Bill is correct. It WILL kick off an issue by transferring it from LLC to yourself. The banks will NOT lend to an LLC, period. Get yourself a business line of credit, which in most cases can be unsecured and will allow you to finance your own deals. Been a bank manager of 3 years and that was always the problem. Best way around your issue is the business line of credit or business credit card. Your LOC will be reviewed yearly and can be increased if you pay it on time, so after 1-3 years you might just have a line of credit for 100k or more. Don’t blame your banker, he wants to make the loan but is not the person writing the guidelines. You might also go back to him or her and build a relationship, as they may be able to send you some great business. As a bank manager I had access to all of the banks REO properties. I also knew how all of my customers were doing and wether or not they had real estate to sell…don,t burn your bridges. Good luck