Interesting question re: property ownership, LLC, mortgage, due on demand, etc.

Not sure if there are any (asset protection or otherwise) attorneys here, but I just had an interesting question posed to me, given a situation I am looking at now.

Person A finds a great deal, makes an offer, offer accepted, and he goes to buy an investment property, in his own name. Person A quickly moves to get a mortgage, personally. As the deal starts to proceed, Person A, goes to set up an LLC, hoping he could “assign” the purchase to the LLC and simply move the LLC into place of him. Obviously, ultimately, he wants this property properly owned by an LLC. Now, all of us understand the due on demand aspects of a mortgage. For whatever reason, the lender has already moved ahead, far enough down the road, and has a series of very difficult hoops to ump through, in order for an LLC to be the borrower – including, of course, a personal guarantee; which I nor Person A has a problem with. So it looks like this deal will move ahead personally.

After closing, he attempts to get the lender’s permission to “transfer” ownership to the LLC. He discloses all of the details, send the documents to the lender, etc. Lender does not reply. Finally, lender replies to Person A’s attorney and says nothing more than there is a due on demand clause in the mortgage, which in a sense infers “NO” you can’t and “NO” we won’t agree. Now in all my years in real estate – I’ve never seen a bank exercise a due on demand clause due to this reason. Nevertheless, here is the question…

Person A transfers the property to the LLC. The mortgage stays in his name. All tenants pay rent to the LLC. The LLC keeps it’s own bank account, does not co-mingle any funds with Person A personally, maintains all proper books and records, all 100% legitimate and clean…and the LLC pays the mortgage every month, and of course the bank cashes the check every month as they couldn’t care less who is paying the mortgage…

So the mortgage is in Person A’s name, personally…any credit protection issues/concerns here?

I recommended an “assignment of interest” for the mortgage, from Person A to the LLC. Not that it’s valid or changes anything as far as the bank is concerned, but it offers one more legitimate transaction between him personally and the LLC.

Any thoughts or comments? Thank you in advance.


Asset protection is in combination of a combination of things. First you refer to an LLC in the singular sense, however if you want LLC protections where the veil cannot be pierced you will need a multi member LLC with at least one additional party other than your spouse or direct children.

No lender will call a loan due when payments are being made as agreed on time, for the most part lenders could care less who makes the payment as long as the payment is made!

You will always have to remove the deed from the LLC to make any financing changes and put the deed back in the LLC after completion, the LLC does not provide protections between you and your lender, it protects you from tenant liabilities and landlord / tenant disputes involving litigation.

He does not need lenders permission to transfer as the LLC has no lender protections, you must make your payment or lender is coming after you in foreclosure in the borrowers name!

You should probable have an escrow servicing account receive rental income and make the mortgage payment and taxes / insurance if this is creative financing and the loan is say in an original owner under sub2 or if this is lease / option where tenant wants to insure rents are paid and property is in good standing!

An assignment of mortgage interest does absolutely nothing as the loan is between party on the agreement and the lender and it can not change until a new mortgage is in place with a new owner of deed and new lender!


Thanks for the reply. I get the single member LLC problem, vis a vis charging order remedy. I get the rest of what you are saying as well. Let’s make it simple – Person A goes through these steps (as I portrayed) and gets sued. Aside from the single member LLC issue – how would it look, to a plaintiff, a mediator, Judge; that everything is in good order, but that the mortgage is still in Person A’s name? Or is it immaterial due to the single member LLC issue? Thanks.

Simply put, as I see it, the lender has NO CONTRACT with the LLC and only with person A. therefore it is a breach.