-- Answers to Questions About Real Estate Law
Money and real estate news you can use everyday

Real Estate Lawyer
Question of the Week
Tip of the Week
Recommended Books
Contact Sam

Creating LLC For Rental Property

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM # LAW 765

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A ThinkGlink reader owned rental property with a mortgage. He created an LLC to protect his assets and transferred the building to the LLC. Now he is worried that the mortgage company will call in the loan. Ilyce and Sam explain why lenders call in loans after property has changed hands.

Q: I purchased a 4-plex, and wanted to protect my personal assets. I formed an limited liability corporation (LLC) and transferred the title to the 4-plex into the LLC.
(article continues below useful links)

My mortgage has a clause in it that states that the lender can accelerate the repayment of my debt because of this transfer. However I do not think they will find out unless I don't pay the debt I owe them.

But now my insurance company is going to notify my lender to change the insurance policy to the name of the LLC. What should I do? I am the only member of this LLC.

A: For the most part, you may be correct. As long as a lender obtains its payments and the property is insured, the lender may not find out that there has been a transfer of the title to a property. Your insurance company, of course, has to tell the lender that the policy has changed and that the new entity is the owner of the property.

While the lender may not care, particularly since you are the sole member of the limited liability company (LLC), you probably should have called the lender prior to setting up the LLC and transfering title to the new company.

Now that you have done that, if the insurance policy still names you and the LLC, you may find that the lender doesn’t care. If the lender does care, you will have to explain to them why you transferred title to the LLC and hope that they do not accelerate the debt.

Most, if not all, mortgages have a clause that says that if a property is sold or title to the property is transferred the lender has the right to call the loan. “Calling the loan” means that the lender has the right to tell the borrower that it’s time to pay up and pay off the loan in full.

The lender reasons that it made a loan to a particular borrower and want to make sure that that borrower always has an interest in the home. If the borrower sells the home, the lender wants the right to quit the arrangement and get repaid.

It’s time to call the lender and see if they will work with you in the transfer. Many lenders will send you a letter and tell you what you’ve done is okay. Others may not.

One possibility is that the lender will approve the change, but maintain the right to call the loan in the future.

But if you knew in advance that your lender would not approve the transfer and did it anyway, you’re playing with fire. I hope you have enough cash on hand or can refinance the property quickly.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website




RSS Feeds

RSS 0.91 Feed
RSS 1.0 Feed
RSS 2.0 Feed

Home Buying   Using Attorneys to Buy a Home - Earnest Money - Quitclaim Deeds - Easements - Seller Misreprensation - New Construction - Buying with Partners - Home Inspections - Seller Problems - Agent Issues
Home Selling    Using Attorneys to Sell a Home - Seller Disclosure laws - Title Problems - Buyer Problems - Real Estate Agent Issues - Tax Considerations
Home Ownership   Neighbor Problems - Seller Misrepresentation And Fraud Issues - Problems In a Condominium Development - Problems Around The House - New Construction Issues - Subdividing Land
Home Renovation   Architect Issues - Contractor Issues - Problems With Contractors - Inspection Issues - Certificate Of Occupancy - Municipal Inspections - Punch List Issues - Financing Issues - Installment Contracts
Real Estate  
Loan Application Problems - Refinancing Issues - Paying Off An Old Loan - Credit Problems - Seller Recommended Lender - Prepaying A Loan - Prepayment Penalties - Predatory Lenders
1031 Exchanges - Financing Investment Properties - Landlord and Tenant Issues - Partnership and Company Considerations - Tax Considerations - Subdividing Land
Contact Us | Sitemap | Terms of Use | Copyright ©2001-2005. ThinkGlink Inc. All rights reserved.
Reproduction of material from any pages without written permission is strictly prohibited.
Site design by Walker Sands Communications