Holding and Financing property in LLC ??? - Posted by Don(MD)

Posted by Clint Coons on November 06, 2003 at 09:00:50:

The trust does not obtain an EIN number. All gain and loss is reported on the beneficial holder?s tax return. In the above strategy, the ultimate beneficiary will be you and thus your 1040. LLC holds the trust and you hold the LLC. Regarding the SMLLC issue, it does not matter whether the LLC is taxed as a partnership of disregarded because as a member/manager you can actively or materially participate in the LLCs activities. In other words, you get your deductions.

With the 1098 that will be carried on your return if, you are implementing disregarded entities or on the 1065 if, the LLC is taxed as a partnership.

Loan fraud is a cause of action that can arise from a borrower making false statements on his loan application about his income, assets, finances, etc… Here you are not falsifying a loan document you are transferring property after the close.

Sincerely,

Clint Coons
Anderson Law Group, PLLC
www.alglaw.com

Holding and Financing property in LLC ??? - Posted by Don(MD)

Posted by Don(MD) on October 28, 2003 at 13:32:15:

How are you folks managing to hold the property in an LLC ? Because apparently you can’t get a cheap loan in the LLC’s name. All you get is a commercial loan that is much expensive and terms are not that good. Here’s the situation I’m dealing with -
I recently rehabbed a property that was purchased in an LLC and used HML’s money for rehab. Now for (re)financing it, my lender has recommended that I hold it in a personal name and then move it back in LLC in near future (for liability protection).

So, my concerns/questions were -

  • I have to incur extra overhead to move the property back in my personal name (now) and (later) move it back in LLC ?

  • There will be a seperate, unrecorded deed that deeds the property from my personal name to my LLC name. This deed will not be recorded in the courthouse and so will be hidden from lender (so that he does not call the loan due) ? So, for public purposes my name will be on the property forever, which I don’t particularly like.

  • And if something bad happens and someone is out so sue me now, he can’t sue me (personally) since the property is (under the cover) deeded to LLC and LLC is supposed to be sued ? And whenever someone is out to sue me, I go and record this deed (which has been in my closet for years) in the courthouse, so that the person is not suing me but to LLC technically.

  • Its kinda like a back-door thing here that I’m sensing here, i.e. I move the property back in LLC but do not record it in the courthouse, so I’m hiding it from the lender but I’m protecting myself by (steathily) moving it in LLC.

The other option (that I was told) was to get a loan in the name of LLC which would be a commercial loan and the terms will not be that favorable.

Just wondering how you folks handle this ? I’m just lost and confused, I would greatly appreciate if someone can step-by-step explain me how you guys are handling holding and financing properties in LLC ?

Thank You,
Don(MD)

Re: Holding and Financing property in LLC ??? - Posted by Clint Coons

Posted by Clint Coons on October 29, 2003 at 23:18:05:

Don,

Wow, this is a long post and a good one because many investors have the exact same question. I have my clients deed the property from their personal name into the LLC. I know the due on sale clause is a concern however, I do not yet know of a lender exercising the clause unless the borrower quits paying. If you are not comfortable with the threat of your lender possibly calling your note due, you can utilize a land trust and accomplish your goals.

I recommend to my clients that they first deed the property into a land trust then assign the beneficial interest to their LLC. Also, please note that if you do not record the transfer you will be sued personally and the plaintiff will look to you personally for satisfaction of a judgment.

Sincerely,

Clint Coons
Anderson Law Group, PLLC
www.alglaw.com

Re: Holding and Financing property in LLC ??? - Posted by Erick

Posted by Erick on November 06, 2003 at 24:48:47:

Let me also get this straight. You would propose placing the property into a trust with yourself personally as the beneficial interest holder. Then, you go to the bank, get the loan and then transfer the beneficial interest from yourself to the LLC. The lender won’t know you’ve subsequently transferred the beneficial interest and therefore no DoS problem.

Is this how it might work?
And if so, how does the tax reporting work in terms of who gets the 1098? (I’ve asked a similar question in another post). Does the trust get a new EIN and the lender uses that number or does the lender still use the individual’s SS#?
And then, if you want to have the LLC deduct the interest payments (doesn’t really matter since this is a SMLLC but what if it’s not disregarded) how do the interest payments get creditted, or 1098’ed, to the LLC.
…lot’s of questions…
By the way, could the transfer of beneficial interest to the LLC be considered loan fraud some how and not just a “violation” of the due on sale clause?

Thanks.