Q: I purchased a 4-plex, and wanted to protect my personal assets. I formed an limited liability corporation (LLC) and transferred the titleTitle refers to the ownershipOwnership is the absolute right to use, enjoy, and dispose of property. You own it! of a particular piece of property. to the 4-plex into the LLC.
My mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. has a clause in it that states that the lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. can accelerate the repayment of my debt because of this transfer. However I do not think they will find out unless I don’t pay the debt I owe them.
But now my insurance company is going to notify my lender to change the insurance policy to the name of the LLC. What should I do? I am the only member of this LLC.
A: For the most part, you may be correct. As long as a lender obtains its payments and the property is insured, the lender may not find out that there has been a transfer of the title to a property. Your insurance company, of course, has to tell the lender that the policy has changed and that the new entity is the owner of the property.
While the lender may not care, particularly since you are the sole member of the limited liability company (LLC), you probably should have called the lender prior to setting up the LLC and transfering title to the new company.
Now that you have done that, if the insurance policy still names you and the LLC, you may find that the lender doesn’t care. If the lender does care, you will have to explain to them why you transferred title to the LLC and hope that they do not accelerate the debt.
Most, if not all, mortgages have a clause that says that if a property is sold or title to the property is transferred the lender has the right to call the loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds... “Calling the loan” means that the lender has the right to tell the borrower that it’s time to pay up and pay off the loan in full.
The lender reasons that it made a loan to a particular borrower and want to make sure that that borrower always has an interest in the home. If the borrower sells the home, the lender wants the right to quit the arrangement and get repaid.
It’s time to call the lender and see if they will work with you in the transfer. Many lenders will send you a letter and tell you what you’ve done is okay. Others may not.
One possibility is that the lender will approve the change, but maintain the right to call the loan in the future.
But if you knew in advance that your lender would not approve the transfer and did it anyway, you’re playing with fire. I hope you have enough cash on hand or can refinance the property quickly.
Published: Aug 26, 2007