Transferring Texas real estate property to or from an LLC may be advantageous providing that the proper legal documentation and compliance with state requirements have been met. Your LLC may protect you from any claims that might be asserted against your property. Furthermore, your LLC may help protect the property from claims that are asserted against you personally. We cover the legal requirements for LLC transfers in Texas below.
Transfer Property to an LLC in Texas
When you have a Limited Liability Company, it may be advisable to transfer your Texas property to an LLC for tax reasons and for liability reasons.
Mortgage Company Approval
Most mortgages contain a critical provision that affects LLC transfers.
BEWARE: If there is a mortgage on the property, you may be required to obtain the prior written consent from the mortgage company BEFORE you transfer the property to the LLC.
Understanding the Due on Sale Clause
Good to know: You will need to call your mortgage company and advise the mortgage company that you want to transfer the collateral for its loan to a LLC owned and controlled by you. Most mortgages contain what is commonly known as a “Due on Sale” clause. This clause requires the prior written consent of your mortgage company before you transfer all or any part of the property to another person or entity.
Note: If you fail to obtain the prior written consent from the mortgage company before you transfer the property to your LLC, the mortgage company may be allowed to foreclose its lien on the property.
The mortgage company will discover the change when the new tax bill comes from the tax office and it shows a new owner. Red flags will go off at the mortgage company and it may start foreclosing on your property.
Maintaining LLC Good Standing in Texas
It is very important that the LLC is legally formed at the time of the transfer of the property to the LLC.
It is also very important that, so long as the LLC owns the property, you must keep the LLC in “good standing” with the State government that allowed you to form the LLC.
Good to know: To maintain an LLC in “good standing” in Texas, and in most states, the LLC is required to file tax documents every year with the Texas Comptroller of Public Accounts and pay any franchise taxes required by the State. This is in addition to filing and paying your Federal Income Taxes.
If an LLC fails to file the required documents and/or pay its franchise taxes each year with the State, its “existence” could be “forfeited” which means it is terminated by the State.
If the LLC owns real estate when its existence is forfeited, you will be required to pay fines, pay all back taxes, penalties, and interest, and file additional documents to “reinstate” the LLC before the LLC can transfer the property. You may need professional help from your CPA or an attorney.
Good to know: Once you transfer property to an LLC, you need to keep the LLC in good standing with the State.
Our fee to set up your LLC includes ALL formation documents, not simply the Certificate of Formation.
Our fee also includes the Secretary of State’s filing fee.
What Type of Deed to Use to Transfer Property to an LLC
The type of Warranty Deed you choose may affects title insurance requirements and future buyer confidence. Both General Warranty Deeds and Special Warranty Deeds can transfer property to an LLC, but title companies prefer one over the other.
General Warranty Deed vs Special Warranty Deed for LLC transfers
To transfer a property deed to an LLC, it is common to use either a General Warranty Deed or a Special Warranty Deed. Since you are transferring the property from yourself to a company you own and control, it may be better to use a General Warranty Deed, rather than a Special Warranty Deed. Title companies and subsequent buyers prefer to insure or purchase title that has been acquired by a General Warranty Deed.
File Your Deed Transferring to Your LLC
The current owner of the property simply signs a Warranty Deed to transfer the real estate property to the LLC. Once the deed is signed in front of a notary, the deed needs to be filed in the county clerk’s office of the county where the property is located. You can mail or take the signed and notarized Warranty Deed to the county clerk. The clerk will file it and return it to the LLC.
After the deed transferring the property to your LLC has been filed, the county tax department or Central Appraisal District should change the name of the owner on the county deed records to show the LLC as the owner of the property.
After the Transfer – Insurance and Tenant Notification
Be sure to change the property insurance to show the LLC as the owner.
Good to know: If you have tenants in the property, be sure to notify the tenants of the name and address for the new owner of the property. This is very important. Failure to notify the tenants may prevent you from receiving the benefit of limited liability from future claims from the tenants.
Should I Transfer My Primary Residence to an LLC in Texas?
The simple answer to whether you should put your personal house in an LLC is – NO. NOT an LLC.
It is not recommended that you transfer the residence you live in to an LLC.
Good to know: Do not transfer your homestead to a LLC. You will lose your homestead protection against creditor claims and you may lose your homestead and any other tax exemptions you may have on your property taxes
Instead, you should consider transferring your residence to a properly prepared Trust.
Transferring Rental Property to Your LLC
We highly recommend you transfer rental property to your LLC.
For liability purposes alone, you should consider transferring any rental property you own or wish to purchase in the future to an LLC.
There may also be tax advantages. Ask your CPA or other tax professional.
It is simple and easy to transfer your rental property to a Limited Liability Company or LLC.
Can you Use an Out-of-State LLC for Texas Property?
Good to know: Your LLC does not need to be a Texas Limited Liability Company. As long as your LLC is properly formed in any State, and is in good standing with that State, you can transfer your Texas rental properties to the LLC.
LLC or Trust – Which is Better for Texas Real Estate?
An LLC or a Trust can own real estate in Texas. If you have a properly prepared LLC or Trust, you can transfer your property by signing a Warranty Deed, either a General or Special Warranty Deed, to transfer the property.
We recommend that you contact your CPA or other tax professional to determine which entity is better for your circumstances. The documentation and procedure is similar for both an LLC or a Trust.
Transfer Property From an LLC to an Individual
Transferring property out of an LLC requires proof of the LLC’s legal status and the proper authorization. Title companies will verify these requirements before closing the transaction.
Proving LLC Good Standing for Property Transfer
To transfer property from an LLC to an individual, entity or other new owner, you may be required to prove that your LLC is in “good standing” with the State. A title company may require this document before it will close the sale. Most title companies should know how to obtain verification that the LLC is in good standing.
“Certificates of Account Status” which were previously called “Certificates of Good Standing” may usually be obtained online from the Comptroller’s Office.
Note: If the LLC is not in good standing, you may not be able to transfer the property until the problem is fixed.
Authorized Signers and Company Agreement Requirements
You may also need to prove the name of the person authorized to sign for the LLC. Usually, the person authorized to sign for the LLC is the manager, member, or managing member.
A title company or your Buyer may want to see the Company Agreement for the LLC to confirm the name of the person who can sign for the LLC. This is a reason you want to make sure the LLC is properly prepared and formed BEFORE you transfer property to the LLC.
FAQ
Do I need mortgage company approval to transfer property to an LLC in Texas?
Yes. If there is a mortgage on the property, you may be required to obtain prior written consent from the mortgage company BEFORE you transfer the property to the LLC. Most mortgages contain a “Due on Sale” clause that requires the mortgage company’s written consent before you transfer all or any part of the property to another person or entity. If you fail to obtain prior written consent, the mortgage company may be allowed to foreclose its lien on the property.
Should I use a General Warranty Deed or Special Warranty Deed to transfer property I own to my LLC?
Since you are transferring the property from yourself to a company you own and control, it may be better to use a General Warranty Deed rather than a Special Warranty Deed. Title companies and subsequent buyers prefer to insure or purchase title that has been acquired by a General Warranty Deed.
What does it mean to keep an LLC in good standing in Texas?
To maintain an LLC in “good standing” in Texas, the LLC is required to file tax documents every year with the Texas Comptroller of Public Accounts and pay any franchise taxes required by the State. This is in addition to filing and paying your Federal Income Taxes. If an LLC fails to file the required documents or pay its franchise taxes each year, its existence could be forfeited by the State.
Should I put my primary residence in an LLC in Texas?
No. It is not recommended that you transfer the residence you live in to an LLC. Do not transfer your homestead to an LLC. You will lose your homestead protection against creditor claims and you may lose your homestead and any other tax exemptions you may have on your property taxes. Instead, you should consider transferring your residence to a properly prepared Trust.
Should I transfer my rental property to an LLC in Texas?
Yes. We highly recommend you transfer rental property to your LLC. For liability purposes alone, you should consider transferring any rental property you own or wish to purchase in the future to an LLC. There may also be tax advantages. Ask your CPA or other tax professional.
Can I use an out-of-state LLC to own Texas property?
Yes. Your LLC does not need to be a Texas limited liability company. As long as your LLC is properly formed in any State and is in good standing with that State, you can transfer your Texas rental properties to the LLC.
How do I transfer property from an LLC to an individual in Texas?
To transfer property from an LLC to an individual, you may be required to prove that your LLC is in “good standing” with the State. A title company may require this document before it will close the sale. Certificates of Account Status may usually be obtained online from the Comptroller’s Office. If the LLC is not in good standing, you may not be able to transfer the property until the problem is fixed.
Our fee to set up your LLC includes ALL formation documents, not simply the Certificate of Formation.
Our fee also includes the Secretary of State’s filing fee.
Contact Us
If you have any questions about starting an LLC for your real estate, email attorney Scott Steinbach directly at scott@texaspropertydeeds.com. Or call 972-960-1850.