During our last Real Estate Investors 101 workshop, Judy Giel of MetLife Home Loans talked about problems associated with financing and LLC's.
Limited Liability Companies, aka LLC's, are often formed by real estate investors to create liability protection, increase anonymity, provide debt protection and many other reasons. However, they do present some problems and complications that we'd like to share with you.
Before we address concerns, please be advised that we are not attorneys or CPA's and we strongly suggest you consult with professional counsel prior to making any decisions or changes.
The problems we'll discuss pertain to investors who have or will have mortgages associated with their properties. If you bought your residential property using a lender to fund the purchase, you did so in your own name, notyour LLC. Residential lenders lend to people, not businesses.
Many investors re-title the property in the name of their LLC. Doing so can invoke the "due on sale" clause in your loan instrument. Actually, it does invoke the clause, whether the lender takes action is a different story.
Historically, most lenders have not taken action; However, the current industry problems have created policy changes. In talking to several lenders, they said their banks rarely invoke the due on sale when a property is transferring into an LLC and they probably wouldn't if you arecurrent with your payments. Again, we reiterate, consult with an attorney to get the most current info and rulings.
We mentioned that banks lend to individuals, this is true for refinancing too. When refinancing a loan you will have to transferthe property out of the LLC and back into the borrowers name. The transfer is likely to costa few bucks depending on who does the work. Check with your LLC preparer for exact costs and don't' be surprised if it is over $500.00.
Well, we hope this info provides you value and service... our objective here at Real Estate Investing101. In an upcoming post we'll have a real estate attorney describe the benefits of forming an LLC. Check back often to see what new info we're putting out there to help you be an informed person.
Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777
