So I am reading that most lenders feel it is a violation to put properties into an LLC? Then I read here that it is a good idea to open an LLC and transfer properties into. Why bother with LLC’s if you’re not allowed to transfer properties into it? Has anyone ever has their personal assets saved by using an LLC in the event of a lawsuit?
From what I understand the proper way to transfer a property to an LLC is to go to the title company and fill out a quit claim deed. Is this illegal or not?
It is absolutely legal to put your property in an LLC. The LLC provides the protection of a corporation, but is more like a partnership arrangement. LLC "members” (vs. ‘share-holders’ or ‘partners’) participate in the day-to-day management of the company without incurring personal liability. All taxing agencies (state and federal) tend to “look through” the LLC to its members as the responsible parties in terms of accounting for, and payment of, income tax. Profits and losses relative to passive activities within the company flow to the members who remain free of individual self-employment tax. I use a land trust to protect the real property and an LLC to protect my personal assets.
Da Wiz
Typically, if your transfer violates the Due on Sale Clause (DOSC) the lender will generally have, at its option, to ability to “accelerate” the loan (call the loan due). You will have to look in the mortgage document specifically. However, two intems to think about:
#1- if the loan ids perfoming (payments are being made on time) the lender will probably will not “accelerate” the loan. It typically does not make sense.
#2- you may transfer the property to a “trust” or “Land trust” for estate planning purposes but you will have to follow the Guidlines of the Garn-St Germain Act. It specifically states that a borrower may transfer the property into an iner-vivos (living) trust in which the borrower is and remains “A” beneficiary and which [trust agreement] does not relate to a transfer of rights of occupancy in the property. However, the granting of a leasehold interest may be done by/within a separate lease agreement without compromising the trust or the lenders DOSC (Bill Gatten, NARS Land trust Seminar course workbook, p.129).
these are just some starting points. using this principle, you can assign “beneficial interest” to your LLC but you nmay want to consult your CPA or ask mcwagner (REIClub patron), he is quite knoweledgeable in terms of the LLC structure and may be able to cite references regarding this issue. If not, I am sure he can research the topic for you. Another REIClub Patron you may want to ask is “Da Wiz” he is familiar with “Land Trust” concept and Garn-St-Germain, he probably has more experience in that area.
hope that helps or gives you more insight into some different options.
Don’t forget to protect your equity in the property with a “Friendly Lien”
Redwing,
I see no necessity for a friendly lien. With two unrelated beneficiaries, the trust cannot be penetrated. “Since the interest of the beneficiaries under a land trust is personal property, and since the trust agreement expressly precludes the vesting of any legal or equitable right in a beneficiary, partition is not available.”
A co-beneficiary in a land trust can be seen as a “partner,” and a claim (or charging order) effected against a co-beneficiary would be impossible without a dissolution of the trust. Since an unrelated co-beneficiary is not responsible for the actions of the other: such dissolution would not be allowed.
Henry H. Keno on Land Trusts, IICLE, Springfield, Illinois (1989)
Smith v. B of A; Houghton v. Pacific Southwest Trust and Savings Bank: 111 CA 509, 295 p. 1079,
The CA. Code of Civil Procedures §697.510]
Da Wiz
Da Wiz,
are you saying that it cannot be penetrated at a “Federal” level?
I could not locate the referance you cited from CA. Do you have a link to it?
“A creditor of a beneficiary in a co-beneficiary land trust may not attach the land or claim an interest in its corpus. (Such protection is similar in effect to holding a property in a limited partnership or multiple member limited liability company).”
• Resnick, Bernard, “Is There Such a Thing As A California land trust?” See pg. 225, L.A. Bar Bulletin, April 1973
• Finnie v. Smith, 82 Cal. App. 707 (1927)
• IRC §1034; Rev. Rul. #66-159, 1966-1 C.B. 162
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Trust law is covered by the UCC. It is my understanding from conversations with my trustee that it even protects against IRS liens.
Da Wiz
Yes, they protect against “Liens” -
but do they protect against Seizure?
here is my argument:
If you own “beneficial Interest” in a Land trust, Can a judge, State or even Federal, Seize your interest. I am not talking about creditors, I am curious about Federal Seizure Powers.
I believe that in this situation, your beneficial interest would be visible for seizure.
Even a poorly prepared prosecutor can ask the right questions of a Trustee in a deposition and gain access to the names of the beneficial owners.
They may or may not be able to get title to the property because of partitionability, but I would question whether or not you could personally have a judgement rendered against you and any of your other assets that may be exposed … including EQUITY in your investments owned by an LLC or some other form of entity or structure. Your EQUITY would be at risk unless they can’t find any, wouldn’t you agree?
I don’t agree. Whether or not they are able to obtain the names of the beneficiaries, Henry Kenoe (Kenoe on Land Trusts) was emphatic in his insistence that a land trust with a designated remainder agent or co-beneficiary would not be subject to liens by any judgment creditor (including the IRS) or charging orders. I and our attorneys stand pretty strong on that one. We find no indication that this has ever happened (re. multiple beneficiary land trusts wherein the respective parties are unrelated in intent and objective): although there have indeed been several cases involving the setting aside of single beneficiary land trusts wherein no remainder interest was designated and where there were no co-beneficiaries named.
Da Wiz