I have formed my LLC and am in the works of trying to get my first deal done. I have made an offer in the name of my LLC, however, my lender has come back and said that I had to make application as an individual, but later on after the purchase, for asset protection, I can transfer the title to a trust and have my company as the beneficiary.
Does this seem right? What will it cost me to transfer the property to my company’s name later?
Where did you get this information? What you said violates the fraudulent transfer laws and your LLC/trust combination won’t be respected by the court.
you need a new banker.
BLL,
I must be dense today because I don’t see where you are coming from. If bpmiller2 does this on the lender’s instructions, then where is the fraudulent transfer?
bpmiller2,
I talked with BB&T today. The commercial loan officer told me that his bank would have no problem lending to my (revocable) trust or to my LLC with my personal guarantee. Of course, the commercial loan interest rates are higher than the consumer residential mortgage rates so a commercial loan may not be the best vehicle for a long term holding.
Also, the loan officer told me that they would have no problem if I took out a consumer residential mortgage on an investment property which I later transferred to my revocable trust or to my LLC.
I agree with Mark, you need to shop for another lender.
Dave,
Fraudulent transfer laws do not allow transfers for the purpose of defrauding, delaying or hindering a creditor. When most people use the term “asset protection”, they mean creating some kind of structure that defrauds, hinders or delays the payment of a civil judgment. bpmiller2 said his transfer was for asset protection and the Townley case is the precedent that will be used to show his structure should not be respected. I’d have a different answer if he said estate planning, business continuity, risk management, or some other valid reason, but he chose a reason that is illegal and he will pay dearly if he ever repeats that comment to a plaintiff’s attorney. People do engage in planning that does defraud, hinder, and delay payment of civil judgments and these plans withstand attack well. They just aren’t so obvious about it. It’s all about intent and having a valid business reason.
As for transfers to a revocable trust, the law specifically allows that and the bank can’t do anything about it. It’s the changing of the beneficial interest that gets people into trouble. That won’t be a problem for a few more years until the foreclosure rate drops and prices stabilize. There is zero chance a lender will call a performing loan when there is a virtual certainty they will take a loss.
I don’t have any confidence in this banker. The recommendation violates the due on sales clause of the mortgage and there are plenty of banks that will loan to an LLC with or without a personal guarantee.
Thanks everyone for the feedback. I thought there was something wrong with this picture, thanks for confirming. I would much rather start out purchasing under my LLCs name and give a personal guarantee.
BLL,
You must be reading something into bpmiller2’s question that I don’t see. He never said anything about a pending lawsuit so I don’t understand how he is defrauding, delaying or hindering a judgement creditor. With no lawsuit pending, I don’t see how a title transfer can be deemed fraudulent.
I fully understand that the transfer of ownership WITHOUT THE LENDER’S APPROVAL violates the loan’s “Due on Sale Clause” and the lender has a contractual right to accelerate the loan and initiate a foreclosure proceeding.
Because of this limited penalty for violation of the DOSC (acceleration of the loan), and the fact that a check going through the lender’s collection area is not checked against who owns the property and who wrote the check, few if any accelerations even happen.
The fraudulent transfer law applies to future, unknown creditors of the defendant/debtor, not only current ones. There is no requirement a lawsuit be pending or even contemplated. A plan can be in place for decades and still be pulled apart because of the intent to defraud creditors that did not exist when at inception.
Hyre recommends make a few payments (get to know you) then tell the bank via certified letter of your intent to transfer the property to the entity. Vast majority of banks won’t care. In addition to being completely above board (no concealment, so no accusations of deceptive business practices or fraud), if the bank tries to call the loan due later, you have a strong argument that they waived their rights by not foreclosing when I gave them notice of the transfer. Using a trust does not “get around” due on sale, it merely hides the breach - and the cover up is often worse than the underlying issue. Nixon learned this the hard way, Clinton never figured it out.
I undoubtedly would assume they will want a PERSON to guarantee the loan, otherwise you can just open an LLC for $100 and never make a single payment. You CAN put it in your LLC name on the title, but i’de expect to provide a personal guarantee as well. In fact if they did it w/o the personal assurance, they would be extremely stupid.
yes, they always want a personal guarantee. it’s no big deal.
good news is that it doesn’t appear on your credit (unless the entity defaults) and you don’t need your personal income to qualify as long as the property has a 1.25 DSC.
putting your name on the title defeats the purpose of the entity.
I don't have any confidence in this banker. The recommendation violates the due on sales clause of the mortgage and there are plenty of banks that will loan to an LLC with or without a personal guarantee.
I cant seem to find a lender anymore that will do this. I have immaculate credit and 80% LTV deals that I just want to refi from my Business LOCs to a longer term loan. I would sure love to hear of a reccomendation of a lender to contact that allows me to keep everything in the LLC that holds the properties now…
butlersw3,
You don’t say what area of the country you are investing in. In my area, BB&T is a regional bank that will loan directly to an LLC with your personal guarantee.
You also don’t say who you are talking to at the bank. If you are talking to the residential mortgage loan officer, then you are talking to the wrong person. A loan to an LLC is a commercial loan.
Go back to the bank and talk to a commercial loan officer. If you have some track record of successful real estate investing, you should be able to get a commercial loan for your LLC.
I love this site. I learn something everytime I come here. :biggrin
I never knew that a loan to an L.L.C. was a commercial loan.
Thanks
Dave T, thanks for the response…
I am pretty sure I can get a commercial loan for my purpose, but those carry much higher interest rates. Also, wouldnt I need 4 or 5 properties together to get a commercial mortgage??
I have been doing a ton of research and I finally found the type of loan that I am seeking. I found my answer at some place called “creditboards” or something similar. The type of loan is an “entity vesting” loan on residential property. Some of the lenders I have found recently will put it on your credit report and some not. Washington Mutual is one I found that allows title to vest in the Entity. Of course, these are all portfolio loans, which arent exactly in favor now. I am just going to ride out the storm for awhile in my Business LOCs. Heck, with prime rate dropping, the spread isnt worth refinancing now anyways…
“Entity Vesting” loans will not get you the same terms as a conventional loan, but not quite as bad as commercial. Last I checked WAMU’s terms for Entity Vesting were no fixed rate loans, only option ARMS. Now that may changed in the last couple of weeks based on the recent upheaval in the credit markets. But as we all know now Option ARMS are not good loans for investment properties.