How Do I Transfer Title of a Property From a Person to an LLC?
You could reduce your personal liability for claims or litigation regarding the property by transferring your real estate interests to an LLC.
It’s normal practice for owners of real estate lused as an investment or rental to create a limited liability company (LLC) and transfer ownership of the property from the individual owner to the LLC.
If someone is hurt on your property and sues you, transferring ownership of the property to an LLC can reduce your personal liability.
For protection against liability claims involving other properties, people who own several rental properties may create a number of LLCs.
Here are eight steps for transferring ownership of property to an LLC:
- Contact Your Lender – Transferring a real estate title to an LLC does not transfer the mortgage. You yourself are still responsible for paying the mortgage on time. Additionally, a “due on sale” clause is a condition that states that if you sell the home or otherwise transfer ownership, the lender may demand payment of the whole mortgage balance. If you continue to be completely liable for the mortgage, your lender might agree to let you transfer the title of the property to an LLC that you own. Additionally, your lender can demand that you refinance the mortgage using the LLC as a borrower. You will also be required to sign a personal guarantee that you will pay the mortgage if the LLC is unable to do so unless your LLC has a proven track record of income and credit. The due on sale provision could also be enforced by the lender, in which case you would have to pay off the mortgage and look for new financing. Before attempting to transfer the title, you should be aware of the restrictions set forth by your lender.
- Create an LLC – By submitting articles of organisation to the office responsible for handling business files in your state, you can create an LLC. An LLC can be created offline or online.
- Obtain a Tax ID Number and Open an LLC Bank Account – You must acquire a Federal Tax ID Number if your new LLC has more than one owner, has workers, or satisfies certain other conditions (also called an EIN or Employer Identification Number). By completing a form on the Internal Revenue Service website, you can do this on your own. Even though it’s not necessary, a tax ID could be needed in order to open an LLC bank account. You can visit a bank and open an account in the name of the LLC once you obtain a tax ID number. Money for your LLC should be kept separate from your personal finances in a different bank account. You run the danger of losing the liability protection that your LLC offers if you don’t maintain this financial separation.
- Obtain a Form for a Deed – A deed form can be found online or at your county recorder’s office, or one can be prepared for you by an attorney. Make sure you are using a deed form that is specific to your state because state-by-state deed regulations differ considerably. Warranty deeds and quitclaim deeds are the two types of deeds. A warranty deed that included an assurance that the title was sound and free of any claims or interests by third parties was most likely provided to you when you bought your property. That assurance is transferred to your LLC through a warranty deed. By using a quitclaim deed to transfer ownership, you are essentially giving your LLC any interest you could have in the property. The quitclaim deed does not guarantee that you are the owner of the property or even that the title is clear. Warranty deeds are frequently utilized to transfer property between unrelated parties due to the protection they offer. Experts vary on whether you should transfer a real estate title to your LLC via a quitclaim or warranty deed. Quitclaim deeds are frequently used, although some people prefer warranty deeds since they provide the LLC some recourse in the event of a title issue and they maintain the chain of title to the property.
- Fill out the Warranty or Quitclaim Deed Form – The LLC is the grantee, and you are the grantor. Use the complete legal name of your LLC and be sure to specify your name as it appears on your current deed. The purchase price or “consideration” made for the property may be requested of you. You should check with your county recorder or the state statutes to determine the minimal consideration necessary for the deed to be legal if no money is being exchanged.
- Sign the Deed to Transfer Property to the LLC – You will have to sign the deed as the grantor, and depending on your state, you might have to do it in the presence of witnesses or a notary. Someone will need to sign on behalf of your LLC because some states also call for a grantee to do so.
- Record the Deed – A public record of the property transfer is created when the deed is recorded. A deed is recorded by giving it to the registrar or another organization in charge of maintaining real estate records in your county or city.
- Change Your Lease – If you’ve changed ownership of property that you rent to others, you should update any leases to indicate that the LLC, not you personally, is now the landlord. The LLC should receive rent payments, which should be transferred into a unique LLC bank account. By following these procedures, you will lessen the possibility that you’ll be held personally responsible if something goes wrong.
A quick and easy solution to lessen your personal liability for claims pertaining to the property is to transfer the property to an LLC. However, changing the title to your home shouldn’t be your entire plan. Additionally, it’s crucial to speak with an insurance agent and purchase sufficient liability insurance to pay for any potential claims.