Transferring Real Estate into an LLC: Use Caution When a Mortgage is Involved
by Jessica A. Hayes, Esq.
If you own rental property, you’ve probably heard that transferring it to a limited liability company (LLC) is a good way to limit your liability. If an accident were to occur on the property and you were sued, having rental property owned by a properly-run LLC would ensure that the plaintiff could reach only those assets owned by the LLC, and not the rest of your assets. Given this, the decision to transfer property to an LLC seems like a no-brainer, right? Why wouldn’t you want to limit your liability?
What many people fail to consider when doing this kind of planning is whether there is a mortgage on the property and how the mortgage will be affected by the transfer of title. If the property is mortgaged, it’s extremely important that you review the loan documents prior to making any transfers. Most mortgages include a “due on sale” or “acceleration” clause that looks something like this:
“If all or any part of the property is transferred without the lender’s prior written consent, the lender may require all sums secured hereby immediately due and payable.”
This means that if the property is transferred without the lender’s prior written consent, the lender has the option of accelerating the mortgage so it becomes due the moment it is transferred into the LLC. If the borrower cannot pay off the entire mortgage at that time, the lender may foreclose on the property.
If the mortgage contains language like this, we strongly recommend you write the lender prior to making any transfers, to request its written consent in a document signed by the lender. Without consent in a signed writing, you run the risk of having your mortgage accelerated.
Ask Kit Kat – Birds Flying South
Hook Law Center: Kit Kat, why don’t some birds fly south for the winter anymore?
Kit Kat: Well, scientists say it is “a harbinger of climate change, with species swapping habitats like a game of musical chairs as regions in Europe and the United States warm.” Take, for instance, the example of the American robin. It used to winter is southern states in droves, but now some are staying in northern states for the winter because of warmer temperatures. While they previously migrated to Louisiana and Mississippi, they are now being noticed in the Dakotas. This is just not informal observation, but has been confirmed by an international team of researchers from Durham University (England) with input from the US Geological Survey. Their research was published March 31, 2016 in the journal Science. Their study reinforces earlier research conducted by the US Fish and Wildlife Service, which found the same warming trends. In fact, the US Fish and Wildlife Service predicts that the oriole, mascot of Baltimore’s baseball team, may no longer inhabit Maryland/Northern Virginia in 30 years’ time. The same may also happen to eagles.
It may seem like a small thing whether birds stay in one region or another, but there are implications for the entire ecosystem of an area. It could be compared to people leaving a town after a large company relocates. And all relocations are not easy—there may be other species in the region already with whom the new inhabitant will not easily mesh. In an interdependent world, birds consume insects, and they in turn are consumed by larger prey. It takes everyone to make the system work. From December 2015-February 2016, the National Oceanic and Atmospheric Administration recorded the warmest spike in temperature in a three-month period, going all the way back to recorded history of 1880.
The same trends have been noticed in Europe. Wrens have been noted to decline in Spain. Stay tuned as more information becomes available on this important topic.
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