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  1. #1
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    Mar 2018
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    Default How to Transfer Your Real Estate Into a LLC and Will it Affect Title Insurance

    My question involves real estate located in the State of: WA

    I'm buying a property and closing in my personal name...I want to transfer it from personal name to LLC (for which I am the sole owner) immediately after closing...
    what type of deed should i use when transferring to LLC? Warranty deed? I read a couple places that Quit Claim Deed can be used but can void title insurance...then I read that title insurance
    would default to the "Standard" policy once it goes into the LLC...another title person told me as long as it's "like kind" ie personal to LLC with same owner then the LLC will retain the Homeowners title insurance...I'm very confused now and don't want to screw this up...I also don't want to trigger a "due on sale" clause for the loan of course...thoughts?

    Thanks!

  2. #2
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    Mar 2013
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    This is a VERY IMPORTANT question:

    WHY do you want to put the property in the LLC?

    Maybe you've heard or read that it protects your assets. Well, it does and it doesn't.

    One of our volunteers here (Taxing Matters) has written the following:

    The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of “piercing the corporate veil” (google it) which is an even bigger risk for single member LLCs.

    The LLC form of business does not protect the LLC from being sued. What it does, when the LLC is operated properly, is prevent the owners from being liable for the LLCs debts simply because they are owners. Owners of sole proprietorship and general partnership businesses are personally liable for all debts of the business just because they own the business. Owners of LLCs, LLPs, and corporations are not liable just because they own the business.

    But the LLC does not protect owners of the business from everything. For example, an owner of a LLC will be personally liable for any loans/credit of the LLC that the owner personally guarantees. Most lenders/businesses that extend credit to small business will routinely demand those personal guarantees. You are also always liable for your negligence. So if you are negligent while doing work for the LLC and someone is injured, both you and the LLC are liable for that. You protect against that possibility with a good insurance policy. Also, the law makes owners of businesses personally liable for a few specific obligations of the LLC, like certain tax obligations for example. So where does the LLC protect you? You will not be personally liable for contracts that the LLC enters into that you do not personally guarantee. You will also not be personally liable for the debt that arises from the negligence of other employees/owners of the LLC. Again, this assumes you run the LLC properly so that a creditor cannot successfully pierce the corporate veil to go after you personally.
    You may have even bigger problems than just your mortgage company. Insurance companies might not write homeowners insurance on a business. If they do it will be at a much higher cost.

    So, again, WHY do you want to do this?

    And stop relying on what people, who don't know anything, tell you.

    Pay a lawyer to advise you on whether an LLC will benefit you or not. Who knows, you might have good reason to have one, but my guess is you probably don't.

  3. #3
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    Mar 2018
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    it was my impression that since it will be a rental property, personal liability protection afforded by the LLC would be favorable...I understand the LLC can be sued still....I also understand piercing the corporate veil...
    ...it was my understanding personal assets would be more protected if LLC is used to operate the rental property

  4. #4
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    Sep 2010
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    There's no "piercing" of the corporate veil necessary here. They'll just sue you directly. You are personally liable for your actions. If your rental is a one-man operation, the LLC will do practically nothing for you. If you have mulitple players involved, it may shield other LLC members from the actions of one of them.

    As pointed out, that you indeed may have issues with the title insurance company, your lender, and your insurer. Of course, hopefully, you've also addressed the fact that you are renting the property with the lender and insurer, for that has its own set of issues.

    As for the deed, you probably don't really care if the LLC never ends up a truly separate entity from you. A warranty deed says you as the grantor represents that you have the property interest that you are conveying. A quitclaim gives up the interest in the property without making any representations about the validity of that interest. I could quit claim you my interest in the Empire State Building. It would mean nothing as I have no such interest.

  5. #5
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    Quote Quoting J Jackson
    View Post
    it was my impression that since it will be a rental property, personal liability protection afforded by the LLC would be favorable...I understand the LLC can be sued still....I also understand piercing the corporate veil...
    ...it was my understanding personal assets would be more protected if LLC is used to operate the rental property
    That's what I thought. And while true, you are a single member LLC. As such your relationship with a tenant is a personal one. If anything happens that involves a lawsuit you will be named personally. The LLC does not protect you from the cost of defending yourself in a lawsuit. If the lawsuit involves your negligence the LLC doesn't protect you at all.

    For that protection you buy liability insurance. You can accomplish that in two ways. You can buy a single policy that combines liability coverage with the property coverage on the home or you can buy a stand along Special Form DP-3 fire policy and add the rental to your homeowners policy with an endorsement called Additional Residence Premises Rented to Others.

    Keep in mind that a commercial policy on an LLC owned property could be more costly than on a personally owned property.

    Also keep in mind that a contractual dispute with an LLC that results in a judgment against the LLC could result in a judgment lien on the LLC owned property.

    I'm not saying don't go the LLC route. Do it if you want to. Just understand its limitation and take other precautions as appropriate.

    By the way, I owned 3 rental properties for 20 years. Never had an LLC. Had appropriate liability insurance. Never lost a minute of sleep about my assets.

  6. #6
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    I suggest you discuss these things with the mortgage lender, the title insurer and an attorney you retain.

  7. #7
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    are you saying the LLC does NOT offer any protection of personal assets like your own home or your wages from being garnished?

  8. #8
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    Quote Quoting J Jackson
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    are you saying the LLC does NOT offer any protection of personal assets like your own home or your wages from being garnished?
    Who do you think might have said that?

    Did you read "adjusterjack's" first response in this thread? In that response, he quoted another poster: "The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business . . . unless they personally guaranteed the contract. . . . The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of “piercing the corporate veil” (google it) which is an even bigger risk for single member LLCs.

    The LLC form of business does not protect the LLC from being sued. What it does, when the LLC is operated properly, is prevent the owners from being liable for the LLCs debts simply because they are owners. . . .

    But the LLC does not protect owners of the business from everything. For example, an owner of a LLC will be personally liable for any loans/credit of the LLC that the owner personally guarantees. . . . You are also always liable for your negligence."

    To be quite honest, why you want to hold title in an LLC is irrelevant to the question you asked. It is, however, something about which you should seek advice from an attorney. What I don't really understand is why you would want to do the transaction in your own name and then immediately transfer title to the LLC. Why not simply do the transaction in the LLC's name in the first instance? That will eliminate any concerns about mortgage acceleration and title insurance. The way you're proposing to do something suggests that there's something you might be seeking to hide from someone. Again, this is something about which you really ought to be seeking advice from a local attorney.

  9. #9
    Join Date
    Oct 2006
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    15,661

    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    Quote Quoting J Jackson
    View Post
    it was my impression that since it will be a rental property, personal liability protection afforded by the LLC would be favorable...I understand the LLC can be sued still....I also understand piercing the corporate veil...
    ...it was my understanding personal assets would be more protected if LLC is used to operate the rental property
    An extra liability insurance policy will do a lot more to protect you than an LLC, and in the end, will likely cost you a lot less.

  10. #10
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    Default Re: Transfer Personal Name to Llc.warranty Deed or Quit Claim.title Insurance Impact

    Quote Quoting J Jackson
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    are you saying the LLC does NOT offer any protection of personal assets like your own home or your wages from being garnished?
    Reread my post. I did not say that at all. My point was that the LLC is not the be all and end all security blanket that you imagine it to be. There are plenty of circumstances where your home and your wages could be at risk in spite of an LLC.

    Quote Quoting pg1067
    View Post
    What I don't really understand is why you would want to do the transaction in your own name and then immediately transfer title to the LLC.
    If OP is borrowing money to buy the property it's likely that a mortgage company would require him to be personally on the loan and on the deed in order to get the money.

    If OP was paying cash it would certainly make more sense for the LLC to buy the property.

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