Fernandez/Gatten/Piper........Need your advise - Posted by Bill{VF}

Real Estate Investing
#1

Posted by phil fernandez on January 16, 2001 at 15:30:51:

Seasoning shouldn’t be an issue. One, banks are not pouring through transaction records looking to find DOS violations. They’ve got better things to do like making loans and earning interest. Now this is of course assuming you are making all of your mortgage payments. Again, the last thing the bank wants is to foreclose on a performing loan. Whether you transfer the property to a LLC or corp, it would still violate the DOS clause.

I’m not an attorney. According to Bill Bronchick, the correct way to transfer a property out of your name would be to transfer it into a land trust which then gives your LLC the beneficiary interests of the trust. This would be for rental properties which I have. I have skipped putting my properties into the land trust first, but probably will and then do as Bronchick says, have the land trust assign the beneficial interests to my LLC’s. But that’s for another day.

Go to the How To Articles and look up everything Bronchick talks about pertaining to the due on sale clause, corps and LLC’s. Happy reading.

#2

Fernandez/Gatten/Piper…Need your advise - Posted by Bill{VF}

Posted by Bill{VF} on January 16, 2001 at 07:57:20:

My corporation owns a multi-use property. The funds for the project were provided by a private investor with him holding the mortgage. He and I would now like to take our business relationship to another level. We intend to form an LLC, move the building which my corp. owns and on which he holds the mortgage into the name of the LLC. Once done, we would like to have the LLC re-finance the property. By doing that, we can free up some additional funds to do more projects (my partner has a line of credit against which he borrowed to provide the original funds for the project.The object here would be to move the building out of the line or credit cap).

What kind of issues are there in getting a re-finance done in the name of an LLC? We want to reduce our tax liability as much as possible in this transaction e.g. transfer tax; how can that be accomplished? Is this a candidate for a PACTrust?

By the way, we are located in Pennsylvania.

Thanks

Bill{VF}

#3

Re: Fernandez/Gatten/Piper…Need your advise - Posted by JPiper

Posted by JPiper on January 16, 2001 at 15:36:36:

If I understand you correctly, you want to refinance the existing mortgage held by your partner so that he can free up his credit line. You want to do so in a new LLC.

The only way I could see this happening is if the members of this new LLC give personal guarantees to the lender. But you might pose this question over on the financing forum. How this may impact your partners existing credit line would be impossible for me to say. Obviously though he is adding debt through the personal guarantee.

I would also alert you to the numerous IRS rules that exist regarding the tranfer of properties between related-party entities. This is something you may want to discuss with your CPA. Simply deeding the property is one thing…but there may be other considerations from the IRS point of view that you need to take into account.

I don’t see the PacTrust providing any benefits to you pertaining to new financing. It might sidestep the transfer tax issue…if there is an issue with that…but that doesn’t sound like the key issue here.

By the way, I would think this whole thing might be easier to refinance in the corporation. Why would you not do that?

JPiper

#4

Re: Fernandez/Gatten/Piper…Need your advise - Posted by phil fernandez

Posted by phil fernandez on January 16, 2001 at 08:52:52:

Hi Bill,

It’s simple to transfer title into an LLC. I’ve transfered ten properties into their individual LLC’s . The one thing I’ve found that when I go to refinance one of my properties that is in an LLC, the lenders make me sign personally for the loans. However at this point they have not had a problem with the properties actually being in the LLC.

In my state when I transfered the properties from my name into the LLC’s , there was no transfer tax due, as this was a paper transaction, no money changed hands and I owned the newly created LLC. Check with that though in your state.

I’ll defer your question on the Pactrust to the expert on the subject Bill Gatten.

Hopefully Piper can chip in here with other suggestions.

#5

Re: Fernandez/Gatten/Piper…Need your advise - Posted by Stew (NE)

Posted by Stew (NE) on January 16, 2001 at 12:20:45:

Do you have a mortgage on those properties? Do you just transfer them in and don’t worry about the Due-on-Sale clause. I really think we(the on-line crowd) make more out of the due-on-sale clause then it’s worth. I bought a rental in Nov. It’s started out at Cross Country who got take over by Wells Fargo, who transferred it to Homeline. All before I made my first payment. So do you just Deed the property to the LLC and be done with it?

#6

Re: Fernandez/Gatten/Piper…Need your advise - Posted by phil fernandez

Posted by phil fernandez on January 16, 2001 at 12:44:38:

Hi Stew,

On some of the properties I did have mortgages. Some of the mortgagees were the sellers that I had been paying for years. I did not consult them, I just deeded those properties into an LLC.

I also had a few other properties that had bank mortgages on them. Again I did’t tell the bank, I just deeded those into LLC’s. I have not heard a word from the banks about the LLC’s. Maybe they know and maybe they don’t.

I agree with you that the due on sale clause is very overrated. Why would the mortgagee call in a performing loan that they originated with the idea of collecting interest on that loan to make money. And also banks do not want to see any more REO’s than they already see. So the due on sale clause threat to me is miniscule verses the benefits that you would get by putting properties in the LLC’s.

Yes, I just deed the properties into the LLC’s and be done with it.

#7

Re: Fernandez/Gatten/Piper…Need your advise - Posted by Keith (AL)

Posted by Keith (AL) on January 16, 2001 at 14:14:26:

What about properties that have very little seasoning? Say 1 or 2 months. Would these have a higher probability of being accelerated if I deeded them into a corporation? If the probability is higher would you still deed them? Thanks.