There are a number of insurance underwriters that will not insure limited liability companies (LLCs). In that case, you would need to change insurance companies - not a big deal, but just takes some time to shop around.
You should check with you lender. The LLC that you set-up would have the husband and wife as sole members and if you live in a community property state and file a joint income tax return it would be considered to be a “disregarded entity” and ignored for tax purposes and would be treated as if you owned the property as individuals. The lender may allow this since it is really still owned by you.
We recently bought a house, which we are renting out to 4 college students, including our daughter. The loan was approved as non-owner occupied at an investor’s rate; insurance coverage has been issued as a landlord’s package.
We would like to create husband/wife (or husband only) LLC for this house but have the following concerns:
a) insurance agent had previously said that coverage will be cancelled or becomes invalid when title to this property is assigned to LLC since coverage was based on our eligibility. Can they do this?
b) we could probably find another insurance that would provide coverage for LLC. However, how do we deal with the Lender that requires proof that they be listed as assigness or interested parties to the insurance coverage. Note: Lender’s note specifically says Lender may require immediate payment in full if all or any part of the property is transferred.
We definitely want to protect ourselves but confused on what to do. Any advice would be appreciated. Thanks.