Financing Real Estate In An Entity

Jan 05, 2010 Comments Off by

Unlike GM & IBM, your entities do not have a long history of being in business with their own credit histories. In the cases of sub-LLCs and land trusts, there may be only one asset in the entity and with thin equity at that. Though, I have heard of a couple of instances where a lender has allowed the property to remain in the entity (in-particular the LLC) when they placed a loan on it, the majority require the property to be deeded out of the entity to your personal name before they will make a loan.

I am questioned often as to what can be done about this problem. Since lenders are private companies, they can make their own rules and this is just one of them. I have never gotten a satisfactory answer when I questioned why it is just the way it is done. Of course, this puts you in the chain of title and gives and indication that you may also own the entity. A price you pay to get conventional financing.

With the corporation and LLC, the state provides a liability shield by statute. So, even though someone may be attacking the owner of the property, it is the entity that owns the property. Your personal assets are behind the liability shield of the entity. And even though they may know it is you that owns the entity, state statute protects you legally. The fact that you once owned it personally, for 10 years or just a day is beside the point.

They can only go after the owner of record as of the date of the alleged infraction. The issue of the entity owning the property does not come up typically in situations involving subject-to, owner carry-back or hard-money/investor financing. Subject-to and owner carry-back financing should be the first financing you seek when buying property.

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