I would like to get some opinions and/or information on my issue. I have a home that I’ve lived in for almost a year. My company is trasferring me to a different state, but I would like to keep my home and rent it out while I’m gone. I plan on returning to this property in a couple of years. I understand that a lot can happen while I’m away and would like to protect myself by forming an LLC. I also understand that it creates an issue with the lender. Can someone please explain how does the Primary Residence-Land Trust-LLC formula works? I’ve seen some info on this site about it, but didn’t completely understand the scenario.
Thanks a lot!
When you transfer property that has a bank loan on it, the bank can call the loan due. This is the infamous “due on sale” clause. As a pracical matter, the banks rarely invoke the DoS clause, because they run the risk of converting a paying customer into a foreclosure. A land trust is used to hide the breach of the DoS.
My problem: Hiding things from the bank looks bad (at least) and constitutes loan fraud (at worst). Either way, I don’t like it. I prefer to be open - and tell the bank what I’m doing. Very few will care, though there is a risk of the bank getting upset and perhaps forcing a refi when transfer title, particularly if Countrywide is involved. That’s unlikely and minor when compared with the risks of using a land trust to conceal a DoS breach. Given that the loan is in your name & therefore public record (at the recorders office), there are no significant privacy benefits to a LT.
As such, I would probably just transfer the property to an LLC…unless you are in an absurd state like CA, which charges $800 per year/per LLC. In my opinion, the asset protection provided by an LLC is not worth $800/year for a single leveraged property. The other 49 states are much more rational when it comes to LLC fees.