Assigning A House You Personally Purchased To An LLC
I have heard from some agents that they purchase up to 3 houses in their name. Then they assign the house to an LLC they own with some other partners that are doing the same thing.
I think they do this to 1) get a conforming loan, 2) make it easier to obtain a loan since it is more difficult for a new LLC to borrow $, 3) banks can't forclose on an LLC
My question is whether this is a perfectly legal strategy? If they assign the house to the LLC, do they retitle it and transfer the mortgage. My guess is that they do not tell the Mortgage company. That sounds like fraud to me.
Isn't it the same as if I sold my house, but let the purchase make payments to my mortgage company?
I think they should purchase the house IN the LLC for it to be legal LLC transaction.
Please advise my here.
Thanks,
JB
First of all, it is not illegal to transfer a property with a mortgage still attached to it. It is true that the lender does have the contracutal ability to initiate foreclosure proceedings but this is rarely done if the payments are made on time.
As far as using an LLC, this is an asset protection strategy. You can be like me and use one property per entity or use simply one entity for all of your holdings.
It is true that it is hard to get a new entity a loan without another entity or person that is established with credit guaranteeing the loan.
It is definalty not true that banks can't foreclose on an LLC. They definatly can foreclose on any property if they have a valid lien against it.
GOOD LUCK
How many properties would you suggest obtaining (for rental purposes) before putting them in an LLC?
Thankd for th quick reply. But I do not understand why it is not fraud if I personally buy a house, take out a mortgage in my name, then transfer both to the LLC. Now the LLC is obligated to make the payments. The lender made the loan to me, not a business. How can this be ethical and not fraudulent. It does not pass the smell test for me??
Isn't the the LLC basically assuming the loan? Am I still liable for the mortgage? I not notifying the lender of the transfer, am I?
Why does the transfer allow the lender to foreclose?
Thanks,
JB
Quote:
On 2004-10-02 19:16, jbruno wrote:
Thankd for th quick reply. But I do not understand why it is not fraud if I personally buy a house, take out a mortgage in my name, then transfer both to the LLC. Now the LLC is obligated to make the payments. The lender made the loan to me, not a business. How can this be ethical and not fraudulent. It does not pass the smell test for me??
Isn't the the LLC basically assuming the loan? Am I still liable for the mortgage? I not notifying the lender of the transfer, am I?
Why does the transfer allow the lender to foreclose?
Thanks,
JB
Actually, JB, transferring title to the property from you to an LLC does not make the LLC responsible for the loan on the property--whoever is on the mortgage is responsible for it. If you stop paying, the lender will foreclose and the LLC will lose the property, unless they can assume, reinstate or sell before foreclosure.
Also, regarding the "ethics": what you are describing is essentially how a subject to deal works: you pay the seller some money to transfer title to you, and you make the payments. Do you tell the lender you took it over? Probably not. Is this illegal? Absolutely not.
The lender has the right to call the loan due upon transfer (the notorious Due on Sale clause built into almost all mortgages), but have their hands full with plenty of non-performing loans to go after performing ones. Keep paying and you probably won't hear from them. If they do call it, have backup contingency financing on hand to cover it--make it part of your business strategy and you'll be fine.
Andy