LLC and DOS

[ggalloway]

I have a property that I've moved into an LLC.  I spoke to my Insurance agent and he said I needed to change the name on the insurance policy to the name of the LLC.  When the policy renewed, a copy of the policy was sent to the leanders.  I recieved a notice from the lender stating that the name on the policy doesnt match the name of the persone they made the loan to (me).  Did I do something wrong here?  Is it really necessary to change the name on the insurance policy?

Thanks,
Greg

[BLL]

You neglected the fact that transferring title to the LLC is a violation of your mortgage.

[mcwagner]

unless you're with countrywide, I've never heard of any objections.

I would tell the bank that I have transferred the property, via certified mail.   In addition to being completely above board (no concealment, so no accusations of deceptive business practices or fraud), if the bank tries to call the loan due later, you have a strong argument that they waived their rights by not foreclosing when you gave them notice of the transfer. 

Most won't really care as long as they're getting paid.  Of course, the recent foreclosure debacle may have changed things....

[msraw2u]

I have a property that I've moved into an LLC.  I spoke to my Insurance agent and he said I needed to change the name on the insurance policy to the name of the LLC.  When the policy renewed, a copy of the policy was sent to the leanders.  I recieved a notice from the lender stating that the name on the policy doesnt match the name of the persone they made the loan to (me).  Did I do something wrong here?  Is it really necessary to change the name on the insurance policy?

Thanks,
Greg

I too have a similar situation as Greg but I haven't taken action just yet.  I have recently set up a series LLC in IL but for the life of me have been unable to get my property in the LLCs.  I have two properties in IL and one in FL.  Can someone please outline the steps that I should take to move these to the LLCs without triggering the due on sale clause.  The lenders are Countrywide, 5/3 bank, and American Home Mortgage (who recently filed for bankruptcy/restructuring).  Can I just quit claim deed these into the LLC?  Can I contact a title company directly for assistance?  I appreciate any assistance/advice that anyone can provide to me.

Thanks,
msraw2u

[BLL]

There is no way to avoid triggering the DOS unless you plan to lie. You will also have transfer taxes in FL when you make the transfer. The person who set up the LLC for you should have provided the new deeds and explained the whole process to you.

[msraw2u]

Thanks for the info.  I don't plan to lie and I can't afford for someone to call all my loans due.  An attorney started me off with the process and when I began to ask all of these questions, he stopped responding to my calls and emails.  These LLCs were costly.  I have already invested $850 to set up the LLCs and the two series.  I now also have 3 EINs that I have to file taxes for and not too much else going on.  This is all new to me as I have been trying to transition out of corporate america into a full time investor.  That is why I am wondering if I can go to a title company for assistance or should I be trying to find me an attorney as soon as possible.  I actually thought about joining pre-paid legal for help.

[BLL]

Prepaid legal won't cover this situation and there is no need for LLCs at this point. Grow your business and carry insurance. When you have enough wealth, you can seek out a true professional to do things correctly. For the time being, I would file the cancellation letters with the state and keep the LLC info for later. They guy that set this up didn't answer your questions because he is only concerned in pumping out documents and probably doesn't enough know what he is doing. Consider this an expensive lesson on the need to only use true professionals.

[tatertot]

Greg, just call them and tell them that you haven't sold the property, but that it has been moved into an LLC for bookkeeping reasons and offer to send them a copy of your LLC documents that show you are still the owner.

You already did it and they know now, so the best you can do is to smile and turn on the charm.

They can call the loan, but the odds are that they won't if you are straight with them. Right now, banks are not needing to foreclose on any more property.

You can always offer to move it back into your name. But probably they are wanting to make sure you haven't sold it "subject to" or some other stuff going on that is against their rules (Did you take out an OO lian? Are you stil lijving in it? Send them the latest copy of your power bill)

[BLL]

just call them and tell them that you haven't sold the property, but that it has been moved into an LLC for bookkeeping reasons and offer to send them a copy of your LLC documents that show you are still the owner.

That makes the LLC worse than useless. It will be no different than owning in your own name with the added expenses of an LLC.

You can always offer to move it back into your name. But probably they are wanting to make sure you haven't sold it "subject to" or some other stuff going on that is against their rules (Did you take out an OO lian? Are you stil lijving in it? Send them the latest copy of your power bill)

Owning personal property in a business entity not only voids the liability protection, it voids the tax benefits. Nothing is tax deductible and you can be accused of tax evasion.

[cisaacs3]

If the LLC is not necessary with single family homes, (I have 4 in my name currently and have the same questions...Am I personally exposed and vulnerable?) What is the recommendation on insurance that will provide similar protection. Some sort of umbrella policy??  At what point does it make sense to put single family homes into a LLC?  How about Duplex, Triplex, 4-plex?

[BLL]

If the LLC is not necessary with single family homes, (I have 4 in my name currently and have the same questions...Am I personally exposed and vulnerable?)

You are personally liable if you actively manage a business no matter what you do. An LLC is a tool. It is useless when used for an inappropriate purpose (like holding personal assets) or set up incorrectly (like advertising to the world that you and the LLC are equivalent). You have to understand when to use it and when not to use it, when it works and when it won't work. There is too much bad information floating around and much of it comes from people who are trying to help and who look credible or have some kind of authority. Most people, including most lawyers who do this kind of work, have nothing more than a general understanding of the topic.

What you will never hear from gurus and lawyers is that an LLC is almost never needed. They do not prevent lawsuits as plaintiffs lawyers have private investigators who do asset searches and will find out what you own. LLCs do not make a business more professional. Your actions do. LLCs don't protect business assets, which is usually the total worth of an investor outside of the personal home. They don't protect personal assets from owners who actively participate in the business, which describes most investors. Most cases settle out of court for the insurance limits, even if they are as low as 500K. An LLC is only needed when insurance has paid what it will and the judgment creditor is looking to use all assets for the excess judgment. In those cases, the cheap LLCs crumble. Luckily, those situations are very infrequent. You will protect wealth better by reducing your taxes.

What is the recommendation on insurance that will provide similar protection.

Insurance is not a substitute for an entity and vice versa. It is pay off money to make your problem go away so that you can focus on the business. Advanced entity planning is sometimes given to plaintiff's attorney to encourage a settlement for the insurance limits. Once the attorney realizes how much work is involved to collect the judgment, he will settle for the easy money. This situation is not an LLC. Those are easy to pierce when used with no other planning. My personal opinion is to carry a $1M umbrella for every $5M in equity. Notice I said equity and not value. Mortgaged property is immune to credit attack unless the creditor is willing to wait for you to pay off the mortgage.

At what point does it make sense to put single family homes into a LLC?  How about Duplex, Triplex, 4-plex?

Planning is done in the context of what you already own, what you plan to purchase, your age, your family situation, your goals, your retirement needs, your health, the needs of your dependents, your charitable inclination, your health, and most every other part of your life. Doing it any other way create too many holes and too many headaches if something bad happens.

[cisaacs3]

Excellant information and thank you for it. 

You are right there is a lot of mis-information out there.
I need a recomendation for a contact to assist in a true needs evaluation.  Any ideas?

[tatertot]

OK you guys, I agree with all.

But what do you recomend for this guy?

He put the property into an LLC without the bank's permission, which he shouldn't have done, but it is already done. You can't unring the bell.

The insurance has to be transferred into the title of he owner. That had to be done.

He got caught by the bank. So the bank already knows and that can't be undone.

I can't see any other option except to throw himself on the mercy of the bank and beg them not to call the loan.  His only chance is to show them that he has not sold the property without paying off the mortgage. That means he has to show him that he is the owner of the LLC, and thus, still the owner of the property. Then he prays that the bank doesn't want any more foreclosures.

What difference does it make if he tells the bank that he owns the LLC? Anyone can find the owner and the board of directors of any LLC, simply by going to whatever agency in the state registers LLCs.

There isn't much protection in an LLC in real estate, anyway, because the owner is still liable for his personal actions, and it's hard to have real esate and not do anything at all with it.

Not to mention, that if the original poster didn't even know he could get his loan called for putting the property into an LLC without permission, he probably doesn't know how to maintain it as a strictly separate identity. Someone didn't advise him right i the very beginning, so what other mistakes have been made?

What other option does he have now, except to try to straighten it out with the bank? They might work with him if he is upfront and admits he made a mistake. They aren't going to be so acomodating if he tries to run and hide.

He sure as shooton' is not gling to be able to refinance it quick in the name of a brand new LLC.

[BLL]

But what do you recomend for this guy?

Put the property back in his own name. The bank isn't going to call the loan given the current market.

He put the property into an LLC without the bank's permission, which he shouldn't have done, but it is already done. You can't unring the bell.

Yes, he can. The only concern is the bank's calling the loan, which it won't do unless it wants to take the property back and try to sell it.

I can't see any other option except to throw himself on the mercy of the bank and beg them not to call the loan.  His only chance is to show them that he has not sold the property without paying off the mortgage. That means he has to show him that he is the owner of the LLC, and thus, still the owner of the property. Then he prays that the bank doesn't want any more foreclosures.

It doesn't matter if he owns the LLC or not. The LLC is separate legal entity and not an alter ego of the owner. The LLC is the legal owner of the property, not the owners. Change the title to the pre-LLC business will undo the damage.

What difference does it make if he tells the bank that he owns the LLC? Anyone can find the owner and the board of directors of any LLC, simply by going to whatever agency in the state registers LLCs.

That's only true of poor planning. There are give up ownership without losing control or the benefits of ownership.

There isn't much protection in an LLC in real estate, anyway, because the owner is still liable for his personal actions, and it's hard to have real esate and not do anything at all with it.

Again, that's only true of poor planning. There are several ways to protect equity and enjoy the benefits of ownership without the liability of direct ownership.

What other option does he have now, except to try to straighten it out with the bank? They might work with him if he is upfront and admits he made a mistake. They aren't going to be so acomodating if he tries to run and hide.

He can put the property back into his own name. The bank doesn't want the property. It wants the mortgage paid.

[BLL]

I need a recomendation for a contact to assist in a true needs evaluation.  Any ideas?

Check out the free articles from the wealth preservation institute and the asset protection society. The asset protection corporation also has some good information. So Sue Me and Asset Protection Concepts and Strategies are good books for beginners.

As for an individual, have your local attorney and tax guy hire one of the national planners. This type of planning is a team approach.