Trusts, LLC’s and Title to Real Estate

Trusts, LLC’s and Title to Real Estate

At Preferred Financial Services, Mark Wells often receives questions regarding how real estate title can be held.  Here, he addresses questions about Trusts, corporations, and LLC’s.

Can I purchase an investment property and hold the property in an LLC or corporation for liability purposes?  Fannie Mae and Freddie Mac do not allow for their loans to be closed in the name of an LLC or corporation.  So many investors close initially with their names on the title and mortgage, then transfer the title into an LLC for liability protection.  There are differing legal opinions as to whether the deed transfer triggers a “Due on Sale” clause which could void the mortgage, but in practice I have never seen this happen.

Can I hold or transfer my house into a Trust for estate or tax purposes?  Both Fannie Mae and Freddie Mac allow homes to be held in certain types of Trusts.  In particular, the types of trusts allowed are:  Inter Vivos Revocable Trusts, Revocable Trusts, Living Trusts or Revocable Living Trusts.  A/B Trusts, which are usually structured for estate purposes fit this category and are allowable.

Which Trusts are not allowed?    Any Non-Revocable Trust, defined as an arrangement in which the grantor departs with ownership and control of property, and requires a Beneficiary to dissolve the trust, are not allowable.

Any easy way to remember which is which?  Yes, a Trust that can be “un-done” by the borrower, is generally allowable.

I own a beach house that I use myself, but rent out to help carry the costs.  Does the fact that I rent it out mean that I cannot refinance it as a second home?  Am I stuck with a rental property interest rate?    As long as you treat your beach house according to IRS rules, and maintain personal use of the house for at least 15 days out of the year, your lender will give you a second home interest rate.  There is a box that you need to check on your Schedule E where you report the rental income, stating to the IRS that you maintained personal use of the home for the required 15 days.  Failure to check that box can result in the lender classifying your beach home as rental property.

For more information or questions regarding Trusts, LLC’s and Title to Real Estate, contact Mark Wells or call 864-235-9596.