The Perils of Transferring Property to an LLC Post-Closing: Real Estate Radio Hour Legal Minute, February 15, 2014

This month’s Legal Minute theme of “things people do in real estate transactions when an attorney isn’t involved” continued this week as I touched on one of the more common missteps – attempting to retitle property in the name of a newly formed LLC after closing.  You can here the audio here.

Frequently, a purchaser of non-homestead real estate desires to increase their liability protection after closing by transferring title to the property to a liability limiting entity such as a limited liability company.   This is a risky maneuver, for several reasons.  First, if the purchaser financed the acquisition of the property through a third party commercial lender, it is very likely that the mortgage covering the property contains a “due on sale clause” which requires the lender’s consent to any transfer of title to the property and if such consent is not obtained, the lender can accelerate the balance of the loan.  Second, if the purchaser obtained a title insurance policy at closing, most policies will be voided if the insured transfers title to a third party, even when that third party is an LLC wholly owned by the insured.

It is always advisable that you consult with a knowledgeable real estate attorney about the effects of a proposed conveyance of real estate to your own LLC prior to initiating the conveyance.

As always, archived segments are available here.