Why Does My Bank Refuse To Move Property Into LLC?

I opened an LLC for the purposes of owning rental property. However, after forming the LLC and asking the bank about it, the mortgage bank indicated that they do not allow the transfer of the loan into an LLC (Wells Fargo). What should I do? According to my lawyer, this is more and more common these days. I know there is a difference between transferring the loan and transferring the title into the LLC. Is there anything I can do?

– Rob, North Carolina

Answer

It’s the due on sale/ due on transfer clause that is gumming up the works.

In practical terms, you need to find someone at the mortgage company with authority to transfer the loan. This is probably difficult, because all these loans have been collateralized and securitized by Wall Street and nobody really knows who owns what.

Your best bet is to try to find a company that will refinance the loan in the LLC’s name–basically selling the property from you to the LLC. The problem is there might be tax consequences (talk with your lawyer), plus whoever refinances the property will probably want a personal guarantee from you on the mortgage.

In the old days, when banks held mortgages themselves and Wall Street wasn’t involved, you might have been able to work this out if you had a good relationship with the banker. Today, it’s a real pain, and you’ll need to get creative (or get a creative lawyer).

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