|Transferring Real Estate Into An LLC|
The LLC Is Formed – How Do I Move My Real Estate Into the LLC?
If you own real estate and hold title in your personal name and decided to form an LLC to hold the property to protect yourself – you made a wise decision. This article discusses the procedure to transfer the property into the LLC. The first step is to form the LLC. Once all the requirements to form the LLC are complete, it is time to move your real estate into the LLC. The property is transferred to the LLC by signing a deed that conveys the real estate to the LLC. Then, the deed is recorded in the county in which the real property is located. Let’s look at these steps in more detail.
Review Loan Documents. If you have not already done so, the first step before transferring any property into an LLC is to review the loan document (mortgage or deed of trust) to determine if transferring the title into the LLC will violate a term, condition or covenant of the mortgage or deed of trust. Generally, if the loan documents prohibit a transfer of title without the lender’s permission, you risk invoking any applicable “due-on-sale clause” in the loan document if you transfer title without the lender’s permission. A due on sale clause allows the lender to call your loan if you violate a term or covenant of the loan. You can talk to your lender regarding the lender’s requirements for transferring the real estate into the LLC. Every lender is different and some will require a refinance, an assignment or an assumption of the loan. If you do not obtain the lender’s permission and transfer title without advising the lender, then if the lender discovers the transfer and if it violates a covenant of the loan, the lender can call the loan.
Title Insurance/Deed. The next step is to work with the original title company so they can prepare and record the deed and add an endorsement to your existing title insurance policy. The endorsement will add the LLC to the current title insurance policy. Each title company has its individual requirements for this process, so please contact them and they will assist you with the entire process.
Property & Liability Insurance. Next, before you move the property into the LLC, you need to contact your insurance agent to discuss the changes to your insurance policy that covers the property. The existing insurance policy is written in the individual owner’s name and since the LLC will now own the property, the insurance policy needs to be written in the LLC’s name. Failure to change the insurance may result in voiding your coverage so make sure you contact your insurance agent before transferring the property into the LLC.
Registration with Assessor. If you are using the real estate as a residential rental property, Arizona law requires that owners of residential rental property provide ownership information to the County Assessor. You can complete the form on line at the County Assessor’s website.
Sales Tax. As a landlord, you also need to pay rental sales tax at the city and the county level. Please contact the city where the property is located to determine the sales tax rate and the payment and reporting procedure. The county will also advise you of the reporting and the payment procedures.
Joan L. Jakel