Watch out for LLC ownership.

[Couch Potato]

Investor ownership in an LLC will soon be unacceptable.

Freddie Mac, one of the two largest underwriters of conforming loans on the secondary market, have changed their internal rules to state that they will no longer refinance a property that has been inside of a Limited Liability Company (LLC) for any time within the past 6 months.

 

[Tudor]

Hmmm?? Too many LLC's went under after refinancing maybe?

 

[Terrel L. Shields]

That' s why they call them "limited liability" corps.

They have a place in managing risk for people exposed to default by shielding creditors from other assets the person may own. Fannie wants to take a crack at anything you have.

 

[Elliott]

Wow, a Freddie Mac attorney stayed awake long enough to
figure that one out. They probably got a ton of speculator
LLCs foreclosures in Las Vegas and found they had no recourse.

Remember the real estate radio ads where the woman
boast, "In just 4 months using Jess Jardon methods (?) I have 6 LLCs,
4 S-Corps," yada yada....wonder how her investments are doing today?

 

[ghrousseau]

Wow, a Freddie Mac attorney stayed awake long enough to
figure that one out. They probably got a ton of speculator
LLCs foreclosures in Las Vegas and found they had no recourse.

Remember the real estate radio ads where the woman
boast, "In just 4 months using Jess Jardon methods (?) I have 6 LLCs,
4 S-Corps," yada yada....wonder how her investments are doing today?

Elliott,

Fannie, Freddie, and the secondary market has long had a policy to not allow investment properties or second homes to be held in trusts, corporations, or LLC's at the time of closing. The way the investors get around it is to deed the properties out of individual title after closing to the LLC. This is an interesting step by Fannie/Freddie, as they are trying to keep people from refinancing investment properties as owner occupied. Regarding LLC's and recourse: the original person obligated on the note is still liable for the debt. Deeding the property to an LLC does nothing to remove that original obligation to the individual debtor. It may complicate the foreclosure proceedings, but they still take the property.

 

[hglenbetts]

Elliott,

...........The way the investors get around it is to deed the properties out of individual title after closing to the LLC. This is an interesting step by Fannie/Freddie, as they are trying to keep people from refinancing investment properties as owner occupied. Regarding LLC's and recourse: the original person obligated on the note is still liable for the debt. Deeding the property to an LLC does nothing to remove that original obligation to the individual debtor. It may complicate the foreclosure proceedings, but they still take the property.

Transfering ownership, even to a family trust, can void the title insurance.
Most title companies now offer (for a price, of course) a premium policy that will bridge an ownership move into a shelter.

 

[Marcia Langley]

Aside from the important issues mentioned above, I've noticed an increase of MLS listings where the LLC had "owner financed" on a previous sale and the new sale is actually an REO.

Quirks in the market just aren't as easy to spot as they used to be. Extreme diligence is required.