Question:
What liability does an individual have to mortgage company if a property that is mortgaged to same individual is Quit Claim Deed to a LLC? Will mortgage companies allow this? If so, is the individual still liable for mortgage or does the LLC take full responsibility?
Thanks in advance to all those that apply.
Eric
The individual is still liable for the mortgage…
You will probably need to be a member of the llc in order for the llc to quickclaim it…unless its an armslength transfer and you will be paying taxes on it…or if capital gains will be paid. Nonetheless…the property will always be security for the back so long as the mortgage is open…
I am not an expert on this, but it seems that the mortgage would be due in full if the property is transferred to an LLC that you are not a part of- this would be considered a sale of the property since it is changing hands. You can’t guarantee a mortgage on a property that you don’t own.
Curious if anyone would disagree and if so, under what circumstances this could be done.
I always thought that the mortgage was guaranteed by the property no matter who owns the property. Their vested interest is in the property not the person on the mortgage.
I can see your point- curious if there are any real estate attorneys on this forum that could shed some light.
Most transfers Ive seen have been from owner to an llc or sub s that they were either a member or principal of…
When you close on a real estate loan there are two documents that are created: the note and the deed. The note creates the debt and the deed defines ownership. The two are different but connected to a lender.
Most lenders prefer to have the title holder (ownership on deed) correspond to the person or entity that promises to repay on the note. In the case that a lender is lending to an LLC, or other business entity, most will want you to personally sign the note, or the promise to repay, along with the LLC (usually the authorizing signature). Either way, you are personally on the hook. Usually both note and deed get recorded. The deed to define ownership and the note to define the lien. So, either way, the lender has the lien and the right to foreclose in lieu of payment and all persons signing on the note have that responsibility to repay regardless of the other individual’s failure to perform. In other words, if two people sign the note and one no longer takes care of his share of the responsibility, the other is still 100% liable for the debt.
Most lenders do not like to lend to LLCs becasue of the liability protections. This is why it is rare, unless you are dealing with something on the commercial end with businesses that have strong financial status and assets, not to find a requirement for a personal guarantee.
Either way, the lender has the lien on the property and can take the property back, regardless of ownership, upon default. And either way, the individual has the responsibility to repay. With this in mind, you might want to examine, and probably consult with your attorney and accountant, as to the advantages and disadvantages of a property being transferred to an LLC.
Well said
If the property is transferred into a INC or LLC than the property must be refinanced, and have the personal mortgage paid in full. 1st a title company will not allow the deed change to happen and 2nd if they did, and the lender found out, the title company and the owner would be reponsible… But you should talk to a title company or lawyer.
Actually, Lenders will not close a loan in the name of your LLC because then the loan is no longer saleable on the secondary market to Fannie Mae and Freddie Mac. I have seen one of our investors who will let you close in your LLC name but they are willing to portfolio the loan.
I have never seen a lender call the loan due because someone quit claimed it to their company. And if it ever became and issue, just quit claim it back.
It should be noted that Fannie Mae and Freddie Mac are not the only Secondary market. Secondary market sources and securitizing entities are much broader in focus than just what is accepted by Fannie Mae and Freddie Mac. If you are looking solely at lending programs that are backed by Fannie and Freddie, then you are only looking at one sector of the lending community. There are companies that lend in a company’s name.
Lending to an INC or LLC has to be done with commerical monies. The note is under the company and the mortgage is guaranteed by the majority ownership of that company. If gurantees are married then their wives have to sign also, depending on the state. Commerical money can be lent on residential properties, even residential blankets, believe it or not. Commerical is usually 2 points, 5 yr fixed arm, 10 yr term, 25 yr am, with no prepay. Or loc are avaible at prime +1%. In the commerical realm there is also no limit to seller assists. This helps with seasoning, as well as monies down, financing 100%, etc.
In this market, fannie mae and freddie mac have absolutely nothing to do with lending guidlines, or regulations. The monies generally come from private monies lent to a commerical bank for dividens.