Charles,
Thanks for the advice above. You have pretty much confirmed my opinion.
Glad I could help. Good luck.
This thread confirms my suspicion also. I have several loans with one lender and keep getting the same response everytime I ask for written permission to transfer title: it is not company policy. I cannot get high enough up the food chain to get someone flexible. :banghead:
I guess the lender just wants to keep the DOS clause in their pocket regardless of wether they care about the title change or not. We have to be carefull now that interest rates are on the upswing. Given long enough, that 5% mortage may be called on when rates have doubled. I have mainly ARMs so I think that limits the incentive for the lender in the above scenario.
I am going to go ahead and do my dozen or so mortgages. If the lender really wants to foreclose on that many performing loans then they are welcome to try. My exit strategy is to first, transfer title back into my name to and if that doesn’t passify them then refi. 8)
Here is an afterthought.
Rather than just deed the property to my LLC I am planning on selling the property to my LLC using a wrap-around mortage.
Im curious if this will be the equivalent of a third lien and if so then it should show up on any lawyers radar that the property is encumbered up to the hilt.
Granted this will not disuade them if they are focusing on the insurance payout.
I am not a fan of placing bogus liens against real estate to make it look like there is no equity. It is a bad idea and will lead to more trouble than good. I think doing something like that give a judge a good reason to allow a judgment creditor to pierce the veil of the LLC if they can.
CB
I always like input from an attorney. Please explain further.
I don’t see how it is bogus…? I (a legal entity) am selling real property to an LLC (a legal entity). Surely there is nothing bogus about that transaction, Im sure it happens everyday. Does it really make a difference that I am a member of the LLC?
Furthermore, if it was a C-Corp and I just gave the property to it, then the mortgage payments would not be part of the C-Corp’s cost of doing business and thus any rents recieved would be taxed at the corporate level without a deduction for mortgage interest.
On the other side of the equation would I still be able to claim a deduction for the mortgage interest payments if I were not the owner of the property?
Perhaps I misunderstood what you are doing. Are you retaining a lien against the property that you are conveying to your LLC? If so, what is the lien for? To secure additional debt or just the debt that is already in place? If it is additional debt, what are the payment terms?
Thanks,
Charley
Hi Charley
Can I just draw up a deed for the transfer to the LLC and execute it and not register it with the county recorder, will that be still legit ?. Will this solve the problem of the DOS clause.
Thanks
The lien would be securing additional debt. i.e the entity will have a mortgage and make payments to me. In turn I will still be servicing the existing underlying mortgage.
The sale price would be my basis so that I owe no capital gains tax.
If the entity were a C-Corp then the terms of the note would be the same as those for any lender lending to an under capitalized corporation with no credit history: the maximum allowable by law. This would be a good way to bleed profits out of the C-Corp without double taxation.
However, as I will be using a income pass-through entity then terms slightly worse than the terms I have with my lender will suit me fine.
Rfg1
You can transfer title be executing and delivering a deed from seller (you) to buyer (your LLC) even though you do not record the deed. You will need to change the insurance to the LLC. I record the deed. I have not had a problem with the lender. Yes, it does violate the due on sale clause but I have not had that problem. If you do not record the deed and someone decides to sue the owner, the public records will show you individually as the owner. Then you are trying to explain to the plaintiff’s lawyer how you do not own the property etc. etc. and it sounds kind of fishy.
Hi Charles
Thank you very much, I was also thinking it might look fishy, My mortgage broker has done 4 of the 6 loans via Countrywide and some ware on these board I read that, that company has a tendency to call the loans, Have you heard or have experience with that, I was at first just going to record them, given the loan situations I thought of just holding on to them.
Thanks
RF
They won’t call the loans if it is not in their interest to. i.e performing loan and interest rates are falling or you have an ARM. If you have a fixed 5% loan and interest rates are 9% they might call it due and lend that money back out to someone else at 9%.
Is there any type of statute of limitations involved with calling the loan? For example,if I make the transfer to an LLC today, would the lender be able to call the loan in 5 years?
A violation of the due on sale clause could be considered a breach of contract. In Texas, the statute of limitations to file suit is 4 years on a breach of contract. However, a lender does not have to file suit to call the note due under the due on sale clause. I think that you would have a good claim that the lender has waived the right to accelerate the note if they have had the knowledge of the transfer for 5 years and have not acted on it sooner.
Hi,
I’m new so please bear with me.
I’ve recently bought property and am also incorporated in the same state.
I was planning to deed my property to an LLC whose member will be the corporation.
My questions are:
a) how does one deed a property to an LLC in Nevada?
b) how does money travel? (does the renter pay rent to the LLC? or to the Corporation? Who pays whom?
Looking forward to ANY feedback. All help welcome.
thanks
M
WITH ALL THAT HAS BEEN SAID I AGREE WITH RICHBROKER YOU SHOULD TRY PUTTING IT INTO A LAND TRUST THEN MAKING THE BENEFICIARY THE LLC. IN THAT CASE YOU WOULD NOT HAVE TO THINK ABOUT WHAT IF. IF THIS IS SOMETHING THAT IS REALLY BORROWING YOU, PUTTING THE PROPERTY INTO LAND TRUST YOU DON’T HAVE TO WORRY.
I think that the other two attorneys posting here have given you some good information. My spin:
- Transfer the property to the LLC. Let the bank know what you are doing via certified mail. They are very unlikely to call a loan due at present if it is performing. The fact that you give the bank notice provides two benefits:
a) You are not hiding the transaction. You therefore have a very strong defense against accusations of fraud or deceptive business practices.
b) The bank has knowledge of the transaction. If it fails to act on that knowledge (likely), it will probably have waived its rights.
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Land trusts are majorly over-rated in my opinion. I have posted on this topic at length on this forum, as a simple search would confirm. They provide no asset protection and very little anonymity. To be fair, they are very easy to set up. They can be used to avoid transfer taxes in some states & properly drafted can avoid probate as well. You will spend some time persuading title company & insurers to work with them, though it can be done. A land trust does NOT get around the due on sale clause. Rather, it HIDES a breach of the due on sale clause. HIDING things in that manner can lead to allegations of deceptive business practices or fraud. As such, I’d still let the bank know what you are doing if you are using a land trust and I would NOT “cover up” the issue.
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6% TN LLC tax does NOT apply if LLC is “family owned”.
John Hyre
John Hyre,
I am relieved to find that someone with your expertise agrees with me that land trusts are highly overrated and overused. I see them all of the time in Texas and we do not have a “Land Trust” statute. People have a false sense of security in using them.
I want to clarify my earlier statement about a breach of a due on sale clause. Actually, most deeds of trust (mortgage instruments) that have a due on sale clause simply give the lender the right to accellerate the loan if the borrower transfers the property without permission. We use the term “breach” or “violation” of the due on sale clause somewhat inaccurately. The deed of trust typically does not prohibit the borrower from transferring or selling the property. There is not promise by the borrower that he will not sell or transfer the property. The borrower is free to transfer or sell the property. However, if the borrower does sell or transfer the property, the lender has the right, but not the obligation, to call the note immediateley due. So the borrower is not doing anything to “breach’ or 'violate” the deed of trust when he transfers or sells the property. Absent some promise in the deed of trust the he will not sell or transfer the property, he is not doing anything illegal or wrong when he sells the property without the lender’s permission. The transfer or sale simply triggers the lender’s right to call the note due.
Thanks to both Charles and John for the information and advice. It has been of immense help to me in determining the best course of action. I agree with the idea of sending a registered letter to ensure that proper notification has been made. I am sending the letter prior to the transfer to the LLC, in case the response from the lender is negative (unlikely). I will wait a reasonable time for a response before changing the deed. I suppose I’m a bit on the cautious side.
There are a few (national) lenders who offer “property vesting” meaning they’ll allow financing the property in the name of a corporate entity. The loan process is the same with several additional documents required and the terms are the same as other “non conforming” residential loan programs offered. These loans are “portfolio” loan products which are not currently sold on the secondary market. The borrower is still personally responsible on the trust deed.
The mortgage industry is changing rapidly and loan options are expanding daily. With Fannie Mae and Freddie Mac now purchasing 40 yr amortization loans and Pay Option Arms, it’s only a matter of time before “property vesting” will be available through more lenders.