Due on Sale Clause and Investment Real Estate - LLC Friendly Changes!
ฝัง
- เผยแพร่เมื่อ 24 มี.ค. 2021
- In this video, I want to discuss the dreaded due on sale clause that everyone seems to get hung up on.
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Are you worried your lender is going to accelerate your loan because you moved it into an LLC?
What I want to do with this video is give you peace of mind that this is very unlikely to happen from actual guidelines and requirements.
Links mentioned in the video:
Land Trust
guide.freddiemac.com/app/guid...
Additional permitted Transfers of Ownership
guide.freddiemac.com/app/guid...
Servicing Guide
servicing-guide.fanniemae.com/
servicing-guide.fanniemae.com...
Leave a comment below if you have any questions!
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Clint Coons, Esq. is one of the founding partners of Anderson Law Group, Clint has grown his legal and tax firm to over 400 employees by assisting real estate investors with creating and implementing solid entity structuring plans. His success in these regards is in large part due to his personal investing experience. A successful attorney, real estate investor, and speaker, Clint has used his innovative and dynamic strategies coupled with knowledge borne from experience to help thousands of people save millions of dollars and build real wealth.
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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Anderson Business Advisors with its main office at 3225 McLeod Drive Suite 100 Las Vegas, Nevada 89121. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Anderson Business Advisors or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice.
#DueOnSaleClause
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You’re a good person
U give so much free game 😮
I’ve done this through Anderson, and all is well. Changed the bank account as well to be pulled from the LLC to pay mortgage and not a problem either. Good to see property not in my personal name anymore 👍 Going on 2 years as a rental now. Working on my 2nd property 👍
“Own nothing, control everything” 🎉
is it still on your personal credit??
Good info. Question, how did you get around the insurance policy being in your name + the debt is in your name. Did you ever change the insurance name to your LLC name? That usually tips off the bank, wont it?
You will own nothing and be happy.
My understanding is to not take your name off the insurance policy as that would trigger it but instead name the LLC as additional insured. So on the statement it would show both your name and the LLC
Thanks, you answered a long standing question I've pondered.
@𝐂𝐥𝐢𝐧𝐭 𝐂𝐨𝐨𝐧𝐬 yes! How much money should I send? How exciting!
As usual, great content, Clint!
Much appreciated!
Thanks for diving into this, sir! Excellent analysis.
Glad it was helpful!
Thanks Clint! Super clear & great info!
Good video Clint. I really like your videos. Keep up the good work. Bravo!
Thank you very much!
What about houses purchased prior to 2016?
This was a huge help. Thank you!
Glad it helped!
Thank you for a great explanation!
Awesome! Thank you!
You're welcome!
@@ClintCoons this was honesty one of my biggest concerns that have kept me from jumping into Real Estate investing. How can I reach out to retain your services?
@@Invictus_Praetorian 👉 FREE 45-minute consultation aba.link/45minSession
Excellent video and explanation! Thank you!
Thanks
This was pure gold.
Great information. Thanks!
You bet!
Clint you did it again!!!
A major concept any business owner MUST understand is the concept of "mitigating risk", which requires one to understand what their risks are first and then their options to mitigate them. I've been interested in the concept of buying properties "Subject To", but felt the biggest concern/risk was if the lender called the loan due and I couldn't pay off the loan. I love how you showed the criteria that Fannie and Freddie specifies which can be used to determine whether or not a loan is likely to be called due. This helps me understand the level of risk for any "Subject To" deal I may be considering. Thanks again and your information is greatly appreciated!!
Steven Bingham
Thanks for watching and the comment.
Steven he specifically stated in this video that the transfer into LLC is fine when you are the original buyer of the loan. This would not be the case for a Subto.
need to fix the name of the act, not Garden: Garn-St. Germain Depository Institutions Act of 1982
Thanks for the great video. Question: will it be an issue if the LLC is created in state that provides anonymity like WY? Or where the LLC that owns the property is owned by an anonyme WY parent LLC for example?
Great Video as usual Sir! Once the property is deeded into a LLC, will this affect the property insurance since its in your personal name. If I change the property insurance policy to my LLC name wont this tip off the Bank?
Great Video !!!!!
Thanks!
I enjoyed the video. I am looking for some advice on how to go about separating my personal income from my llc. I still do not typically have enough money in my llc checking to cover some of the improvements that I am planning like central air, siding and etc. I only have 2 properties and they each bring in about $500 over their mortgages. To cover the difference in cost for my planned improvements I have been using my personal income but then I see this as hindering my ability to one day in the future obtaining financing in the name of the LLC only. So currently I am trying to learn how to set up monthly books and how to put my money into the llc without breaking that division.
You can make a contribution to the LLC and use the funds to pay for the improvements. I would recommend you get a business credit card for each LLC and use it to pay for the expenses so it does not report back to your personal credit score. When opening a business credit card make sure the company does not report to your SS# and only reports to the business EIN. I use Amex, Chase and BofA for my business.
@@ClintCoons Wow! Thank you so much for the reply! I really appreciate it.
Thank you for all these videos. I have properties in WA and my WY LLC owns my WA LLCs . Do you know if me being just a signer in the WA LLC counts me as part of the LLC for this purpose? Since I’m not the owner of the WA LLC but I am technically the controller . I believe you answered my question on minute 7 . Just double checking. Thanks for all this work
Yes you own and control the LLC so I do believe it will satisfy it.
This is great. So just to make sure: this allows us to bypass the land trust step that you usually talk about? We can just warranty deed straight to the LLC?
Correct. The land trust may still be useful. I have a few videos coming out over the next couple of weeks discussing lending to land trusts.
Thank you for this video, very helpful. The 12 month seasoned really confused you, but I’m glad you were able to clarify investment vs primary residence
Question: me and my wife are 50% members, but our WY umbrella is manager managed by my wife. If the loan is in my name, can I still transfer into LLC post closing, or do I need her on the loan since she is the manager?
Yes you can.
Clint, great content and very timely. What if your property holding LLC is a member managed LLC and you have a DE or WY LLC listed as the sole member? How do you prove you are are the manager of the property holding LLC to comply with Freddie/Fannie guidelines and not violate the anonymity of your LLC structure?
You must provide copies of the operating agreements and sometimes it requires a letter from the drafting attorney.
Clint, what about Fannie Mae mortgages originated before 2016 (let's say 2012)? Chase is saying no to me due the reason that it was originated before 2016 (as you shown in your video).
They may have a point so I suggest the use of a land trust.
@Real Estate Asset Protection - Thanks for all the educational content, Clint! The Freddy Mac rules for permitting LLC transfer don’t make sense to me, i.e. “The transfer is to a transferee who occupies or will occupy the Mortgaged Premises as a Primary Residence” - why is that one of the 4 bulleted conditions that must be met? As it’s written that wouldn’t allow investors to take advantage of this, although my guess is it’s just an error in the way they drafted the rule (e.g. second bullet doesn’t apply if third bullet does, and vice versa) ? any thoughts on how this would be interpreted in court?
Each bullet is a stand alone exception. They are not each a precondition to transferring property. If you own the property for 12 months then you can transfer or if you don't and you did not purchase the property as a personal residence (12 month reside requirement) you can transfer to an LLC immediately. Does this make sense?
What about for a home purchased as a second home? You aren't required to live there for 12 months, but you still have to spend time there for the first year. @@ClintCoons
Great video! Question? What if you take it out of a LLC and put it in your name? Would a due on sale clause come into play?
No it would not if you were the person who originally took out the loan.
Hey Clint, if I remember correctly, you explained a way to have the original borrower be the Beneficiary to the trust, but you have them sign over the beneficial interest to you or your LLC in another document. And this is to help protect against having the mortgage accelerated. Is that correct?
Thanks for all the awesome information and content you put out. I love this stuff.
Correct that is one way to set it up.
The guidance you refer to from Fannie Mae and Freddie Mac both state a property can be transferred to a LLC if the managing member is the original borrower. Since as an investor buying the property “subject to” I am not the original borrower, so I don’t follow this loan can’t be called.
On a subject to deal, you are correct, but then again, no matter how you structure the subject to deal, you violate the due on sale provision when you become the owner. I personally think it is cleaner to use an entity to hold the title and not you individually. At least with the entity on the title, the lender will not see the new owner, who is not the borrower. With the LLC, it obfuscates what has taken place.
Great info as usual... have a question: if i buy small home under my name with a conventional loan , i can transfer it to an LLC right away so i can rent it? Or I have to leave it under my personal name for “12 months “ before i transfer it to LLC?
In my opinion, if your going to have a conventional loan, your better off signing it into the LLC. For paperwork purposes, your name will be needed at closing, that’s my understanding. Basically closing into the LLC. Or......what I did was I purchased the house under my name with a FHA loan 3% down....lived in it for a year....then did the land trust route / LLC / LLC Bank account. Good luck man!
Just like Alonzo stated, if you bought the house as a personal residence then you will need to live in it for a year before moving it into an LLC.
Great video! When buying a property Sub To what would the advantage be between Land Contract vs. Deed in Leu?
You would not take a deed in lieu because you are not the lender. Sub to you are buying subject to the existing mortgage.
Great video, my question is, Is this also true vise-versa if you want to take it out of an llc and take it out of an LLC back into your personal name?
Correct.
I have several conventional, conforming loans on rental properties purchased in the last year explicitly as investment properties. None of these loans are (yet) owned by Fannie or Freddie. Can I expect, however, that I should have an equivalent, i.e. low, level of concern about the due on sale clause as I move these to REPTs and the REPTs in turn, list a disregarded LLC as beneficiary? Also, I noted that the Freddie Mac requirements (just after 8:00) in part iii indicate that the beneficiaries must be individuals, not LLCs and that the trustee must be a corporation or financial institution. As currently about to be implemented, my REPTs list our disregarded LLC as beneficiary and have a private individual as trustee. Should I worry? Change these provisions before implementing them? Thanks for this and all the great information.
Anthony, Personally I do not think it to be a concern but this is an individual decision. The fact both Freddie and Fannie have endorsed the move speaks volumes and it very doubtful your lender will do anything so long as the loan is kept current. Possibly consider using a land trust if you want an extra buffer.
Great info. Does that mean you can make offer using LLC, but closing under individual name and then deed it into LLC at closing? Also after deeded into LLC, how does it compare to Land trust route when it comes refi or sale of the property?
If you are obtaining financing you will close in your own name. (Yes make the offer in an entity but use "and or designated entity" in the offer). After closing you will deed to an LLC unless you plan to refi. If you plan to refi within 6 months keep title in your name until after the refi. The land trust can be more beneficial if you plan to refi within 5 years because if properly structured, you can refi SF property in the name of the trust with most brokers. If you keep it in an LLC you could still refi in an LLC but you will need to seek out a community lender.
My current mortgage company calls me every 6 months or so or if the rates chnage to see if i want to refinance, will they have visibility to see i moved it to LLC even though i pay and not delinquent in anything?
Yes if they pull title.
Thank you so much
My question Is What about S- corporation not LLC ?
S-Corporation is just a form of taxation. You can have an LLC treated as an S-corporaiton for federal tax purposes so it would apply.
What if I'm buying distressed homes, and want to put them in a land trust? Will the loan become due if the trust is not under home owner name but is being transferred to my land trust? Will this cause the loan to become due?
Not likely if the loan is current but if the lender looks and discovers a transfer to a trust that does not have the borrows name listed it might invite an inquiry. If the lender discovers the transfer then yes the lender could accelerate.
Hi Clint,
For Freddie,it says that is OK as long as the managing member is the original borrower. Does this means that putting it under an LLC where the managing member is a Wyoming llc wouldnt work. right?
Thanks
Yes
Does this work for a VA loan?
Awesome thx
You're welcome!
Mine was placed in an LLC and a Revocable Trust but I just got the Due on Sale Clause Letter today. What can I do to save this property?
If you would like to email me the letter I am happy to take a look and comment. My email is ccoons@andersonadvisors.com
Hi Clint, will we lose the title insurance after We transferred our house into the llc that We own ?
Depends on the type of deed you use. Avoid quitclaim deeds. Also you can request a endorsement to make sure you are fully covered.
When getting a property subject to do I have to put it in a land trust so they don't accelerate the due on sale clause.
The lender could accelerate no matter what if they discovered the property transfer. It makes no difference if you use an LLC or land trust because there has been a change in ownership. The key with subject to is generating lender attention and a trust will typically draw less scrutiny than an LLC.
Just saw this video and it's great. I have a question. I own a piece of propert and I am getting harassed by novice investors. Would putting my property in a land trust give me anonymity? The land was purchased years ago in my name. Thanks in advanced
Yes!!
Do I need to contact my mortgage company first to see if this is allow before setting up an llc? How/where do I start?
I don't think so.
Would I still be charged transfer taxes, closing fees and given a higher interest rate if I transferred my rental property to a LLC?
Not if it is a Freddy/Fannie underwritten mortgage.
What if the mortgage loan is older then 2016
It should not matter because the guidelines cover all loans.
question , No mortgage on the property, but if the property is already rented, can I transfer it to LLC and just notify the tenant? Also, are you operating in NJ ?
Yes you can and this is what you should do for asset protection. We do not have an office in NJ but we can assist with your entity creation.
Awesome video thanks! I’m in Pennsylvania, if i quit claim a rental property from my personal name to my LLC will i have to pay transfer tax?
Yes you do when the deed is recorded.
Will your insurance company trigger the due on sale clause by reporting property LLC + WY holding company as name insured?
Not that I am aware of. Never seen it happen.
Do you have to move it back into your name from the LLC if you want to refinance?
Yes unless you are woking with a community lender who will permit you to refinance in the LLC
Is this the same for V.A. Loan. I lived in it for a year but want to move out and rent it out but under an LLC
12 months is a safe bet but I believe it can be as short as 60 days. I would review you loan docs.
What happens if I transfer the property to an llc and then the lender sells the loan to a different lender?
Not sure. I have not seen this clause exercised in 22 years of practice except in circumstances where a borrower did not pay.
If you are following along the aneminity path. How do you prove you are the owners of the LLC?
You’d be the officer or “managing member” of that LLC.
Hi Clint does the LLC have to do any actual business or can it be just a title holding vehicle?
Secondly, can I have a WY llc own my CA property which still have monthly mortgage payments? If yes, do I have to register that WY LLC in CA and pay the $800/yr to FTB if it doesn’t do any business at all?
Thank you Clint
Owning the rental property is doing business and that is why if you set up a WY LLC to hold a CA rental you will need to register the WY LLC in CA - and pay the $800.
@@ClintCoons I’m confused, if the WY llc registered in CA will I lose the anonymity and charge order protection?
@@foreverwealth6845 Yes because CA does not provide either of these benefits.
What if I get the due sale clause, can I revert and take it out of the LLC to comply with the lender? So I dont have to refinance to a higher interest rate?
Yes that might work
Hi, what is your opinion on "series llc"
I like them. Have you watched my videos on the series LLC?
Hi, what is your opinion on "series llc"?
I think they are a great option in states that recognize the series LLC. Check out my channel for several videos on the series LLC
What if you had a property bought as a primary residence, and you got a HELOC on it, then rented it out after a year. Is it safe to transfer that property into an LLC after 12 months, or is the HELOC adding a new layer of risk?
I don't see an issue with it.
Can you apply this to S-Corp? I'm thinking to purchase another property and make my current resident a rental (I live here for more than 12 months). I watched your previous video about how I can sell my current property to an S-Corp so that I can claim the $250k capital gain exclusion on the primary resident. My only concern is my mortgage has a due-on-sale clause, will I trigger the clause if I "sell" my property to my own S-Corp in this case? Thank you in advance!
Put the property in a land trust then sell the land trust to the Corporation. This might help.
@@ClintCoons Why do I need to put the property in a land trust instead of selling it directly to the S-corporation?
@@Kitman0304 You can sell it to an S-Corp. The land trust is just one way of setting this up to minimize the lender accelerating the note.
@@ClintCoons At what time do I put the S-Corp as the beneficiary of the trust? When I set up the trust or when I sell the property to the S-Corp? Thanks!
@@Kitman0304 After you have opened a bank account for the corporation.
How quick can you move it into an LLC after you purchase an investment property? Do you need to wait a certain amount of months to avoid red flags?
There is not waiting period unless it is a personal residence.
@@ClintCoons thanks Clint! Also isn’t there transfer tax when you do this ?? Also why did you recommend in the comments to avoid a quit claim deed? Can you elaborate ?
@@briansurfer8625 A transfer tax will depend on the state where the property is located. If one does exist then consider using a land trust. The quit claim deed can void your title policy.
In order to transfer a property into an LLC, per Freddie, do you have to hold it for 12 months first?
Only if it is a personal residence
Hi Clint, i'm in the process of transferring all my personal SFH (rentals) into separate LLCs. I understand from this video that Fannie and FreddieMac are OK with this transfer, my question is, do I need to get the servicer permission to do this? Meaning do I need to get some form of written approval from the Servicer itself (such as WellsFargo, MrCooper, or such)?
thank you, amit.
Typically you would not bring this up to your lender because they will not consent. The lender may even try to charge you a mortgage transfer/property fee.
for your personal residence ... how do you avoid waiting the 12 months? so I CAN BE ABLE TO RENT my home right away?
Use a land trust.
Does this apply to reverse mortgages as well?
It should.
We bought raw land using TX Vet Land Board loan. We want to transfer to an LLC. Is that possible? Do we have to wait a year? Will TVLB call it to due?
Toni, I do not know but check with your lender. I suggest calling the broker and casually ask "If I were to obtain a loan to buy a property can I move it into an LLC after closing?" If the answer is no then consider using a land trust into an LLC.
So you mention in the video this doesn't apply to property bought Subto. How can you protect yourself if you buy Subto and want to transfer it into an LLC that is managed/owned solely by the buyer, not the seller?
You can use an LLC. The likelihood a bank will discover the transfer is small but if you want additional protection consider the use of a land trust.
How about VA Loans?
That was my path. It’s treated the same. Thank you for your service 🇺🇸
I had the same question. My personal residence is a VA loan, owned 4 yrs BUT just refinanced 3 months ago with a different lender. Still VA but does this mean I need another 12 months under this new refi? Can I do an installment sale to my C corp?
You will need to live the propety for 12 months. When service members PCS they will often turn the previous home into a rental. The home will be placed in an LLC. I have not encountered a situation where the loan was called due in this scenario.
Why would you want to sell the house to your C-Corporation?
@@ClintCoons my advisor mentioned that as the C-Corp would be able to write off the yearly installment payment. Perhaps I misunderstood
Even though a rental property is deeded into an LLC, can the corporate veil still be pierced because the individual's name is on the loan, not the LLC?
Unlikely.
Does due on sale clause insurance work
Not familiar with it.
@@ClintCoons I was told that the Due on sale clause insurance company gets 1 percent of the value of the subject property and whenever the lender calls the loan due the either cash it out or refinance it for you
@@jamarmills7928 I think what you were told is the lender could charge you 1% of the outstanding loan balance.
Hi Clint, great information. I am actually going through this with my lender right now. I am planning to form a multi-member LLC to transfer title of the investment property my wife and I own (I am going multi-member because we are both on the loan, which I believe means we have to go multi-member (correct me if I am wrong)). We also meet all the criteria under Freddie 8406.4 but they are still denying the transfer. Are they able to do that?
You don't necessarily need to make it a multi member LLC and I would not be communicating your intentions to the lender. Best to just deed the property.
@@ClintCoons The advice in not communicating your intentions is helpful. Currently, I'm waiting for approval on a HELOC as my personal residence on another property that I own through Bank of America. How should I convey to inquire when I can transfer the property to an LLC which I already established? Should I ask my heloc coordinator? I would ask the lender after my son moves out after college; I would like to move the property into an LLC to rent his room. When and can I do this? I assume from your video since it is my primary residence for the purpose of the HELOC, I should only transfer to LLC after the approved period of time and not during the application process to get approved?
@@tahjerelewis6052 Are you wanting to move your primary residence into an LLC? If so, you might consider moving it to a land trust and then assign the beneficial interest to the LLC. I would only look at the LLC component if you plan to rent out a portion of the house or Airbnb the property. If you were not renting the property, I would use a land trust with anonymity.
@@ClintCoons Thank you and excuse me. I plan to rent the entire other property, but currently the heloc is noted as my primary residence. I assume after 12 months I can move the property to an LLC, but I am concerned about asking bank of america when I can do that before getting approved since you noted not to convey all your intentions. Maybe not the land trust since I plan to rent the property after it's out of my name into an LLC?
Why say most likely???
At what point?
🤙🏾🤙🏾🤙🏾
I want to transfer to LLC or at least, Land trust with LLC. Although I have VA Loan (Military ) I think I may be able to transfer the title.
Although I cannot transfer the loan since 'VA Loan' does not recognize a LLC as a qualifying person for VA Loan; This makes it hard for me =[
Yes this might cause an issue. Consider using a land trust as an option.