What is the ideal way to transfer a property to an LLC, one with an exisiting loan?

We have a vacation home we want to transfer to our LLC for liability reasons. But the more i research this, it states the transfer will trigger a due-on-sale clause. Our broker said just keep him and the loan company out of it, just deal with the title company, these clauses are rarely triggered. But we just received notice that our loan has been sold. The title company said it varies on how strict each lender is in regards to calling due the loan.

Anyone ever been through this process? The LLC is in our names, we arent changing the terms or the loan but just want the deed transfered.

We were in this situation and chose not to transfer to the LLC because of that clause. I don't know if it was the right thing to do and never explored it further but the due on sale clause was enough for me to not even risk it. The idea of my 2.5% rate blowing up in my face was too risky.

Another aspect because we have this as well is that if it's owned under an LLC you have to charge yourself rent if you decide to use it for personal use. My brother lives in one of our rentals in CO and our accountant always ademant that he must pay rent. He can't just use it.

Is this a conventiinal loan? and when did you take out the loan? if conventional and after 2016 you can trasnfer into a LLC as long as the orginal borrower is the majority owner of the LLC without the servicing being able to accelerate using the due on sale clause.

Quote:

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Note: For all such transfers affecting mortgage loans purchased or securitized by Fannie Mae on or after June 1, 2016, the transferee is not required to occupy the property.

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• a limited liability company (LLC), provided that
  
  • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and
  • the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

  Quote:

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  Note: The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person in order to qualify for a refinance loan and to meet Fannie Mae's Selling Guide underwriting requirements.

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https://servicing-guide.fanniemae.com/svc/d1-4.1-02/allowable-exemptions-due-type-transfer

But, if you run your LLC how most borrowers do, that is to say not like a real business and comingling money etc the LLC would be easily pierced by a competent attorney. Liabilty insurance would still be a good LLC or no.

Mas89 said:

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A good liability insurance policy will be much cheaper and easier.

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I tend to think that way as well on my rental stuff, but then, I don't have $10 billion of personal wealth exposure either.

And, even IF you have an LLC, you really need good liability (and perhaps umbrella) insurance to make sure that when you do get someone making a claim you have the insurer's attorneys handling it.

Otherwise you get the privilege of paying attorneys fees and possible loss of your rental asset.

What about putting it in a standalone trust with no other assets?

Thank you everyone for the responses.

@Jay, it is a conventional loan, less than a year old. But you are correct, a good attorney would find a way to pierce the LLC.

We have decided to nix the transfer, the risk of due on sale isn't worth it to us. And we do have the liability coverage maxed out. Y'all are correct, it is cheaper to max that out than a deed transfer.

At what point to people start considering overall umbrella policies?

Jerzzy said:

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Thank you everyone for the responses.

@Jay, it is a conventional loan, less than a year old. But you are correct, a good attorney would find a way to pierce the LLC.

We have decided to nix the transfer, the risk of due on sale isn't worth it to us. And we do have the liability coverage maxed out. Y'all are correct, it is cheaper to max that out than a deed transfer.

At what point to people start considering overall umbrella policies?

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Umbrellas used to be incredibly inexpensive and a no brainer. They've crept up in recent years but I'm to rhr point it's like flood, I don't want to do without.

It is often mentioned when this type of subject comes up on TA that it is relatively easy for a good attorney to pierce the corporate veil of an entity (llc, inc., etc.). That is not the case these days. A bit of statutory and case law research will show the intricacies of the process = absent fraud - not real easy.