Moving Property Into An LLC
Does anyone know the process of moving a property into an LLC after purchasing it in your own name? I have heard it takes one year to transfer title into the LLC. I am asking, of course, because the LLC provides asset protection. All responses are welcome! Thanks.
That's a really good question... I don't know the answer but I'd like to add something to it. Is it very difficult to create an LLC and palce your properties under it? How does this work & who's credit does it actually go under - the company's or yourselves?
Because I know when I buy and hold properties I do not want them under my own name!
If anyone has the knowledge please share!
I dont know about any time requirements but there are tax consequences. If you transfer a piece of property to another entity (in this case your LLC) and it is subject to a mortgage you have to pay the transfer tax on the amount of the mortgage. Check with your county clerk they will tell you what the transfer tax rate is where you live.
If you bought it cash it would not take that long to put it into an LLC. If you have a mortgage on the property you have to get an approval of the bank/mortgage company. This may take some time. It is always better of course to start an LLC first then purchase investment property. It may be a long process but well worth it in the long run. I have seen it take 3-4 months not a yaer but that is here in Georgia.
You'd use a deed to the LLC, but since this might trigger the DOS provision in your loan, you should first talk to the lender to get their written consent...or take your chances knowing that the loan could be called.
If you deed from yourself to your LLC, it will take enough time to find yourself a notary and sign the deed. Record it, and (in my area) an affidavit of value. Presto! That is all it takes to transfer title. Deeds and mortgages aren't the same thing.
However, as previously stated, the lender can call the note due if it has a DOS provision in the note. Read that carefully. ARMs don't always have DOS issues. Many lenders will not object, as long as you personally sign on the note. LLCs take awhile to build up their own credit, so if you bought using your own credit and your income...well, the LLC might not qualify. If you do speak with your lender about it (rather than just transferring title and hoping it won't get called) get any agreeement in writing. And, as said a million times here, lenders aren't calling many loans right now, since newer loan rates are often lower than the older one.
If you're looking for asset protection why not transfer the property into a Land Trust? It's very simple and straightforward and has very few, if any costs associated with it. The provision Garn St. Germaine will protect you from the DOS clause as well.
Good luck!
polina
I own two rental properties and one primary residence. I want to LLC the rental properties as I own both of them in my personal name. I want to protect myself and the assets from any claims from current or future tenants. If I am the sole owner of the LLC will I be required to pay the transfer taxes, considering the fact that the LLC is unincorporated? What if I have a 50% business partner?
:-o
I think Im kind of baffled here as well. I am about to go thru this next week. I already have my LLC established. My lawyer told me to bring the deed for the properties into him along with a $200 check. He said he will do his thing, send it off to the recorder of deeds and then I head to McDonalds for lunch. I understand that I have to dodge any unexpected phone calls regarding DOS (joking) but he has me believing its quick and painless. So now that the properties are deeded to the LLC & My insurance is pointed to the LLC, payments are to the LLC but the mortgage is still in my name.
Isnt it just that simple?
Something else that recently came up for me while setting this up... which is kind of off topic: I have insurance on my rentals and primary thru Nationwide Insurance. It just dawned on me that they had my Liability insurance for the rentals under my primary home. oops. In order to place the liability under each property the price tripled. It turns out the people over at State Farm are much better. Sorry Nationwide you just lost a 14 yr customer.
You can use a warranty deed in most states to safely transfer the property into a land trust or your LLC. As long as the lender keeps getting their payments on time, it's unlikely you will have any DOS problems.
Mark Warda has some good books with forms for transferring properties into a land trust, being a lawyer from Sarasota, he has some real good books that are Florida specific.
And you can just pay the document fees, I think it cost me like $10 to transfer a property into a land trust. I would not pay $200 for this, unless that lawyer is creating a land trust agreement for you, then, that's not a bad deal.
GL
[addsig]
Keep in mind you will need commerical insurance to be 100% covered if you move to a LLC. Not pointed to the LLC or list LLC as additional insured. Policy has to be in exact name as deed is recorded otherwise insurance may not cover a claim.
Just try to get a something in writing from the insurance company telling you would be covered and it will cinfirm this.
And also you may not be covered from liability since if loan still in your name it will look like you are using the LLC just for protection and you will lose.
Thank you for your responses! They are very much appreciated. I don't see the limited liability effect coming in with the land trust. I agree that the insurance company is going to balk at the fact that their policy name doesn't agree with the name on the mortgage. Is it requisite that I contact the banks who hold my first and second trusts and tell them that the properties were deeded over to my LLC and that the mortgage statement needs to be changed. That seems very naive considering what it seems we have to do to even get these properties.
With respect to the transfer tax issue. As I understand it, and maybe this only holds for Ohio, but this conveyance fee does not need to be paid. Ohio's form DTE100EX called "STATEMENT OF REASON FOR EXEMPTION FROM REAL PROPERTY CONVEYANCE FEE" has 23 different options lettered A through W that you can use as reasons for being exempt from the conveyance fee. It allows the tax to be avoided for all kinds of situations like transferring property bewteen spouses (as in divorce), to the trustee of your trust and from a corporation to a shareholder. It seems that they're trying to allow those situations where there's not really an arms length sale and where there's no money changing hands to legitimately avoid the tax. The option that I believe would work in the situation where you're transferring the property from yourself to your LLC is this one:
---To or from a person when no money or other valuable and tangible consideration readily convertible into money is paid or to be paid for the real estate and the transaction is not a gift;---
On the other topic....
People getting loans in their own name, using their own credit (as opposed to the LLC's) but having the property titled under the LLC is a common occurence (which doesn't simply mean it should work) but, I'd be surprised if arranging it this way precludes you from getting the liability protection with insurance that you're hoping for.
Not sure about your state. One option is a "Quit Claim Deed" from you to your LLC.
Although a recorded document and can be called in should the bank find out however, I have been told that in less tham 2% of cases they actually do.
The reason is that the bank generally is not looking through recorded documents on a constant basis but, instead only when making an additional loan or re-fi.
Hope this is at the bery least "food for thought".
Best Regards