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Mortgage Question

SCNCY

SCNCY

Well-Known Member
Sep 11, 2009
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La Fox, IL
I want to turn my house into a rental property. Currently, the mortgage is in my name, however, I want to put the property into the name of my LLC. My mortgage is with US bank and after calling their customer service, I was told that I cannot transfer my mortgage into the LLC unless I 1) refinance my mortgage, or 2) put my property into an irrevocable trust.

For those of you who have investment properties, does this sound right? Are there other ways to put my property into the LLC? Am I unable to change my mortgage to the name of my LLC? Do I need to seek out a real estate attorney to help me make the change?
 
My mortgage says that I only need to live in it for 1 year. I've lived in the property for 3.

My motivation for moving it into an LLC is for liability reasons. I don't want to be personally responsible if someone were to sue me. I want them to sue the LLC, not me.
 
SCNCY said:
My mortgage says that I only need to live in it for 1 year. I've lived in the property for 3.

My motivation for moving it into an LLC is for liability reasons. I don't want to be personally responsible if someone were to sue me. I want them to sue the LLC, not me.
Click to expand...

Can't help, but might be more experts in the real estate forum.
 
A mortgage stays on the property even if the deed changes hands. As long as you've met the obligation of it being your primary residence for the specified amount of time, which is sounds like you have, I wouldn't refi. Now, the question of how your LLC gets credit for mortgage interest paid in your name is an accountant/attorney question.
 
Does your LLC have significant assets? If not, I don't think there is much chance of not having to refinance at a higher rate because of the lender's risk of default.
 
You can get an umbrella policy($2 or $3MM) if it's only one rental property. This would cover you if you were to get sued.
 
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I'm sure you will, but make sure to have a conversation with your insurance agent as well. I've run across more than one client who had a regular homeowner's policy on a rental property. I don't know if they were afraid to tell the insurer they were renting it out or not, but they ended up paying a lot more because they still had personal property coverage and loss of use and so forth, coverage you'd only need if you were actually living there. Insurance on rentals can actually be quite reasonable.
 
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ISU85 said:
Does your LLC have significant assets? If not, I don't think there is much chance of not having to refinance at a higher rate because of the lender's risk of default.
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Nope, this is a new LLC, so there is no revenue, assets, etc. in it.
 
I was always planning on getting an insurance policy for my rental, just haven't gotten that far yet. However, maybe I will go and talk to them about it to see if I can keep my mortgage, but release myself of much liability risk as I can. One of the other reasons I want to move the property into an LLC is so my lease contracts are as legally tight as possible. I don't think I can have my LLC be a party to the lease if the LLC doesn't own the property.

Also, I found this article from Legalzoom that I have been trying to follow, but I am caught up on the mortgage part of it (part 1).

https://www.legalzoom.com/articles/how-do-i-transfer-title-of-a-property-from-a-person-to-an-llc
 
SCNCY said:
I want to turn my house into a rental property. Currently, the mortgage is in my name, however, I want to put the property into the name of my LLC. My mortgage is with US bank and after calling their customer service, I was told that I cannot transfer my mortgage into the LLC unless I 1) refinance my mortgage, or 2) put my property into an irrevocable trust.

For those of you who have investment properties, does this sound right? Are there other ways to put my property into the LLC? Am I unable to change my mortgage to the name of my LLC? Do I need to seek out a real estate attorney to help me make the change?
Click to expand...

Lots of bad info in here. I did this exact same thing.

The bank is correct because with a new owner you'll need a new loan. Federal law doesn't allow them to just "switch" the owner of a property even if both entities are just you.

I have an LLC and essentially putting your house as a rental but keeping it in your personal name is probably fine. The LLC provides a layer of legal protection but if something happens they'll come after you anyway. By keeping it in your name you don't need to mess with anything at the bank. I've had three income properties and realized the banks don't care what you do so long as they get their monthly payment. Don't ask don't tell, basically.

If putting it in the name of the LLC is that important, why not just refinance? You'll be able to write off closing costs and whatever the increased mortgage interest is. Because an LLC's assets flow to you anyway you can still get those deductions if the property is in your name.

FYI - I too thought this was a great idea until the renters trashed the place, forced me to spend $15,000 repairing it, and then sold it for less than I could have gotten if I would have just sold the dang thing years ago. Income properties are the best thing ever when the tenant pays the rent. They drain the life out of you when they don't pay the rent.

EDIT - my insurance went down when I switched it to a rental policy.
 
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When you sell the property, you will be subjected to capital gain tax on the net profit. Second, depreciation will be recaptured and added to the gross sales increasing the net profit.

The IRS also looks very closely and skeptically at renting to family at below market rates. I refuse to sign off on tax returns in this category. I don't need the hassle.
 
SCNCY said:
I want to turn my house into a rental property. Currently, the mortgage is in my name, however, I want to put the property into the name of my LLC. My mortgage is with US bank and after calling their customer service, I was told that I cannot transfer my mortgage into the LLC unless I 1) refinance my mortgage, or 2) put my property into an irrevocable trust.

For those of you who have investment properties, does this sound right? Are there other ways to put my property into the LLC? Am I unable to change my mortgage to the name of my LLC? Do I need to seek out a real estate attorney to help me make the change?
Click to expand...

Why do you want the mortgage in the LLC's name? You can Quit Claim the Deed into the LLCs name without refinancing. The mortgage is the lien on the property, but you can transfer ownership to whomever you please, you're still obligated on the mortgage, but the home can be in the LLCs name. Been in the mortgage industry 18 years, trust me, no need to refinance just to put the home in the LLCs name.
 
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ca4cy said:
A mortgage stays on the property even if the deed changes hands. As long as you've met the obligation of it being your primary residence for the specified amount of time, which is sounds like you have, I wouldn't refi. Now, the question of how your LLC gets credit for mortgage interest paid in your name is an accountant/attorney question.
Click to expand...

The tax implications isn't really what he is after here, he is more looking for the legal protections.

But as for as the tax angle whether it's in your name or the LLC's name you can still claim the interest as a deduction on schedule E.
 
@clonetil01 I have read about quit claim, looks like I would need to go to a lawyer for that. And correct, I guess I do not want the mortage to be in the LLCs name, but rather I just want to make sure I am legally protected as @isufbcurt said.

Also, I am trying to avoid refinancing, but that was one of the options the bank told me. I'll take a look at the quit claim.
 
MuskieCy said:
When you sell the property, you will be subjected to capital gain tax on the net profit. Second, depreciation will be recaptured and added to the gross sales increasing the net profit.

The IRS also looks very closely and skeptically at renting to family at below market rates. I refuse to sign off on tax returns in this category. I don't need the hassle.
Click to expand...

If renting to a family member why even consider it a rental property? Call the "rent" a gift and use the mortgage as a 2nd home itemized deduction.
 
mtowncyclone13 said:
Lots of bad info in here. I did this exact same thing.

The bank is correct because with a new owner you'll need a new loan. Federal law doesn't allow them to just "switch" the owner of a property even if both entities are just you.

I have an LLC and essentially putting your house as a rental but keeping it in your personal name is probably fine. The LLC provides a layer of legal protection but if something happens they'll come after you anyway. By keeping it in your name you don't need to mess with anything at the bank. I've had three income properties and realized the banks don't care what you do so long as they get their monthly payment. Don't ask don't tell, basically.

If putting it in the name of the LLC is that important, why not just refinance? You'll be able to write off closing costs and whatever the increased mortgage interest is. Because an LLC's assets flow to you anyway you can still get those deductions if the property is in your name.

FYI - I too thought this was a great idea until the renters trashed the place, forced me to spend $15,000 repairing it, and then sold it for less than I could have gotten if I would have just sold the dang thing years ago. Income properties are the best thing ever when the tenant pays the rent. They drain the life out of you when they don't pay the rent.

EDIT - my insurance went down when I switched it to a rental policy.
Click to expand...


Renters trash houses it is what they do, but that will also be dependent on the type of home you are renting out. The higher the rent the more then tenants will care about the property typically. If you don't go in expecting this you will be sorely disappointed. Sometimes you get lucky, but you should never go in assuming different.

That said I have been in the rental property business for almost 30 years now, we focus on self storage properties due to issues in the past with tenants. It is a much more enjoyable rental business to be in as opposed to rental houses.
 
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