Legal Question in Real Estate Law in Arizona
LLC and Quit Claim Deed transfers
I want to transfer two rental properties to a LCC, via Quit Claim Deeds. The loan contracts have some verbage about transfers and/or change of ownership, and warns that if the properties are tranfered, then the Financial Instution will require full payment of the loan. The Financial institution (GMAC for one, and Flagstar Bank for the other), on the phone, say they would not allow such a LLC transfer. One attorney I spoke with says most Banks usually do allow it, and it seems unusual they don't allow it. He also questions why the Bank would care. I've also heard from my Mortgage Broker, who also is a RE investor, that Banks doesn't usually monitor this stuff. Is this really what I should do?
Additionally, I've read that it might be possible to transfer to the property to a Trust. And make the LLC a beneficiary of the Trust. Does this get around my problem of not being able to transfer my properties to an LLC? Does this approach offer the same level of protection?
1 Answer from Attorneys
Re: LLC and Quit Claim Deed transfers
This is called a "due on sale clause."
Most banks do not allow this. They want the owner of the house to be the same person or entity as the borrower.
Transferring to a trust where the beneficiary is not the same person as the borrower will also violate the due on sale clause.
The only way you can do this is to refinance the property in the name of the LLC. Any other procedure will violation the due on sale clause and runs the risk that the bank will demand payoff of the loan.
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