Due on Sale Clause - Vesting Investments in a LLC - Posted by Ben Carmona

Posted by Pia on August 23, 2005 at 10:16:19:

Yikes… meaning to say I wasted $ in forming an LLC that’s not needed. Anyway, thanks for the information.
Pia

Due on Sale Clause - Vesting Investments in a LLC - Posted by Ben Carmona

Posted by Ben Carmona on August 21, 2005 at 15:19:05:

Gentlemen,

I am researching methods of how to put properties into an LLC for asset protection without triggering the “due on sale” clause. So far, I have learned that a purchase transaction can be set up as a ‘land trust’; but this is not the goal of my clients. We want to be able to move these properties away from the individual. One commentor noted investment properties could be refinanced into a LLC. Most lenders will not originate a loan for a LLC. There are some portfolio products available or commericial/bank loans which could accomplish this but your rates, terms, and parameters will not be as favorable. Many investors who do not know about the ‘clause’ move their properties back from the LLC to individual vesting just to get refinance transactions completed. Then they will again take their chances of putting back into the LLC when completed. It is my goal to find a way that this can safely be done? Thanks for your help.

Ben Carmona
www.bencarmona.com

Re: Due on Sale Clause - Posted by Pia Haynes

Posted by Pia Haynes on August 23, 2005 at 01:19:22:

Ben,
I have the same problem as you - my brother and I own a property which we planned on transferring into our own LLC but haven’t because I just can’t find someone to assure me that it’s okay. For the most part, I’ve heard that “the lender won’t know unless we foreclose” but I’m still looking for a better answer. I’m meeting w/ a lawyer on Wed AM and maybe he can shed some light on the situation. I’ll keep you posted.
Pia

Re: Due on Sale Clause - Posted by Ben Carmona

Posted by Ben Carmona on August 23, 2005 at 08:29:28:

Pia,

Yesterday I was able to speak to an attorney and several other investors. All had the same opinion that “yes” the due on sales clause could be triggerd. However, their goal was to only keep the loan in the individual’s name long enough to establish a history for the LLC. If the LLC is already set up, then buying in the individual name may allow for less down so that after a couple years of paying down the balance and appreciation a bank could refi in the LLC’s name. Some indicated that just titling into the LLC was not even a strong security measure for asset protection as the loan would still be for the individual. And moving back and forth for the purpose of refinanicg could pierce the corporate veil once the LLC is set up.

For now, I am going to advise my client as I have been advised. He can not have the best of both worlds…lower rate/long term locks and have protected assets by use of the LLC. He needs to make a decision as to keeping these properties in the LLC and going to a bank for a commercial loan or leave in his individual name.

I did read additional articles that most people should only consider starting a LLC with 3 or more investment properties. Anyless could be handled throug an unbrella insurance policy. Several people mentioned that a Land Trust was the way to go. The beneficiary would be named as the individual with an assignment done at a later date over to the LLC.

From what I’ve gathered the home owners insurance has to match up with the vesting on the title work. And this change on the insurance is what sometimes red flags the investors. So by using a Land Trust, they are hoping that investors will overlook this as it’s generally exceptable to use ‘living trust’. The attorney I spoke with was not familiar with this process and agreed that there are others out there trying to sell ‘unique cocepts’ to make a profit but when it comes down to it, their methods may not work.

Hope this info helps.

Ben