A common occurrence in the East End is homeowners transferring their property into an LLC. An LLC, otherwise known as a limited liability company, can help the homeowner shield from personal liability for a rental property, or provide some tax benefits. Limited liability companies are relatively easy to create by filing the incorporation documents with the New York Department of State. Our office can help with filing LLC’s and with property transfers from an individual or individuals into an LLC.

Regardless of the reason, a property owner needs to know a few things before transferring a property into an LLC. First, if there is a mortgage on the property, the lender typically requires full satisfaction of the mortgage upon transfer of the property. You obviously do not want to trigger that by simply transferring the property into an LLC, so before doing so, we must check with the lender to make sure that they are aware of the transfer and accept that the mortgage will transfer to the LLC. Typically, a lender will allow a mortgage modification to the LLC as long as the LLC has the same members as are on the current mortgage. For example, if John Doe proposes to transfer his mortgaged property into John Doe LLC, and he’s the only person on the mortgage and the only member of John Doe LLC, the lender will usually allow the transfer to go forward without satisfaction of the mortgage. In other cases, where there are additional members of the LLC that are not on the mortgage, the lender may or may not allow the transfer.

Second, similarly, we must check with the title company that insured the original transaction to see if the title policy in effect will still be valid with the new LLC. If, expanding on the last example, John Doe used Acme Title when he bought the property originally, we will need to check with Acme Title to make sure that their title policy will still be in effect upon the transfer into John Doe LLC. Typically, the title company will continue to insure under the original policy if the owner of the property transfers the title into a single-member LLC where the owner is the only member.

Please contact our office if you have any questions about property transfers into LLC’s.

PLEASE NOTE that this article is not intended to create an attorney-client relationship and the information within does not substitute for a consultation with an attorney.

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