I’m new to this forum and to real estate investing in general. I have recenly started to invest in properties along with to other business partners. Over the first 6 months of out venture we were able to purchase 3 single family properties all in the same town. One of the homes is being leased while the other two are still being shown. The problem, however, has to do with ownership. When we set out, our intention has always been to put our investments under our business names. Therefore, we recently formed an LLC, but the properties were purchased prior to the LLC. being formed, therefore, each property is titled under one of our names. I also understand that by doing that, we also received a lower mortgage rate, as well as lower home owner’s insurace quote. However, it appers that the risk of having the titles under our names may be far greater. What can be done in this situation? Could we run into problems with our lenders being that we applied under owner occupy vs. investment property? Any legal ramifications? Anyone have a similar problem? Any repsonse would be greatly appreciated.
if u have an OO loan u cannot rent it out. that would be loan fraud. they don’t want to hear that u were gonna live there but…yadda yadda yadda. they can find out when u change title or get new insurance. be careful
I just had the same exact situation litterally a week ago. I bought a rehab project under my name, rehabed it and now its on the market. Well for peace of mind I decided that I had to put it under the LLC to keep the debt/liability out of my name and in the LLC. I just had to fax the bank my LLC formation papers from my attorney and the then the bank and title company teamed up and got the house under the LLC. All I had to do was sign a few papers. Pretty easy process IMO. Hope this helps!
XJoker25XX Im glad to hear that someone esle is was in the same situation as we are, its always good to help each other out. Having said that, what do you make if TonyDicoropo’s post? the properties are owner occupy so would we run into an issue with loan fraud? Was your owner occupy as well or did you state in the loan application that it was an investment property? Do different states have differing lawas on this?
Not sure how many people actually get caught on this one. It’s difficult to prove intention. I think the banks are kinda happy as long as the payments keep getting made. You could have every intention of moving in and then once you close, you change your mind for one reason or another. That’s not loan fraud. Can’t really be sure how the banks would prove otherwise or why they would even pursue unless the house burned down and the insurance only convered owner occupied and they refused to pay because you didn’t live there.
Some OO loans state that you have to live there for 1, 2 or even 3 years before you can sell. At least mine did.
where would that be listed on the laon application?
The reality is, there is no MORTGAGE POLICE, but if the bank did find out, they can call the loan due as all loans have a due on sale clause and you can trigger is it by purchasing it OO and not NOO. Of course you can always blame your realtor. Now I would have to assume, since you bought it OO you do not have a mortgage in your name now or it was bought as a 2nd home.
Yes in some ways you can say you intended to occuppy the home. If its done as a 2nd home, i believe you have to live 50miles or more from it.
Right now I would not worry, put the properties in your LLC and say nothing. The next time you get a loan, go NOO.
As for your insurance, check with your broker, the policy may not hold up if something happens. Explain to your insurance agent what your doing with each property.
Thanks for your reply yrush2000. At the present time I do have the mortgage in my name as well as my other business partners have other in thier name. I understand that there are no Mortgage police per say, but what kind of consequence can be expected if I had my accountant go ahead and try to transfer the properties under the LLC as of this new tax year. I must also note that these are all new loans, the oldest loan we have is from August 2005.
Im not sure if this relates but just today my banker called and said we are ready to close tomorrow on our heloc we are taking on an investment property that a mortgage broker I do a lot of business with said is not poosible to take a heloc on investment prop. but none the less she asked if the property was in a trust I said no but I was thinking about it and since you are the banker let me as you .If I put the home in a trust would that trigger the due on sale clause and she said no it would be very smart to put the property in a trust as long as you are tied to it in some way.And that was straight from the horses mouth.
Place each of the properties into a land trust.
Name your trustee and I strongly recommend you use a non-profit corporation as Trustee for maximum protection. Your Trustee takes legal and equitable title which is protected under Federal Law.
ALL TRANSACTIONS WITHIN THE TRUST ARE LEGALLY UNRECORDED:
In each of your trusts, assign a 90% beneficiary interest to your LLC retaining 10% in your name.
Triple net lease the properties and you won’t have any maintenance headaches.
Your trustee will collect the lease payments and send you your positive cash flow each month.
MAKE SURE YOUR PAYMENTS ARE MADE ON TIME.
You should be OK. Good luck.
It’s easy for us to say the mortgage company will never bother you but if one of your lenders loans ever has a problem, possibly all his loans may be investigated.
Is there a reason why you your partners can’t keep your prosepctive houses and mortgages and possibly get it right on the next deal?
Review your loan package and see when the owner occupancy period expires. I wouldn’t effect any transfers til then.
A question on the trust issue,If I place teh properties in the trusts then go to get a mortgage on a new piece of property they will see I owe $X ,XXX,XXX but own nothing.How will I ever grt a new loan?
It was not on the app. it was in the contract. This was some time ago. If I was to sell within 3 years I had to pay a pre-payment penalty. I thought it was 2 years and I ended up paying about 3 or $4,000.00 in penalties. It wasn't illegal just cost me a bunch.
Prepayment penalties are on many mortgages. That is why its important to tell a broker your intentions withthe property or at least tell them 1yr soft prepay or hardprepay.
You have mortgages that will penalize you if you just sell the home and others if you chose to refi but not sell.
Also the penalty can be lowered by having the broker charge you more points or slightly higher rate. Basicially if your going to sell or refi within 1 yr, you need to have the propert loan product…
On your loan application you don’t own real estate. You own “stocks and bonds”, as your trust is personal property. The Trustee will write a letter to your lender that indicates your properties are in a triple net lease. Your current mortgage will not be counted against your debt to income ratio because you don’t have the traditional exposure to maintenance and repairs and vacancies. This is not unique and, in fact, I just did that very thing.
what gary is saying is that u don’t own real estate, so that mortgage u will have is for the “stocks and bonds” that do not exist. and that mortgage broker and the lender that will be funding ur new loan are going to be ok with the fact that u are leasing the “stocks and bonds” to urself or someone else on nnn lease.
u will be so protected and ur assets will be so hidden that not even the best pet detective will be able to find out, not even with a court order that u have all these assetts. u r essentially now judgment proof. u have hidden ur life from all mankind so if u decide to screw someone out of something they have no way to get ur assets, not even with Ace Ventura on the case.
don’t forget the saran wrap to keep the germs out too
That was very childish and not very funny. If you don’t understand and/or cannot comprehend the concept or process, why comment at all?
Your equity is legally personal property and, if secured by a note, can be registered with the UCC as a security (which is exactly what I do). The trustee letter works just as I described.
A wise man once said: “You are born with one mouth and two ears. Use them in that proportion”. You may actually learn something.
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i was not trying to be funny ;D
SEE CAPITAL QUESTIONS AFTER STATEMENTS IN ABOVE QUOTE