If you have a Limited Liability Company, it is often advantageous to transfer your property to or from an LLC. Your LLC may protect you from any claims that might be asserted against your real estate property. Furthermore, your LLC may help protect the property from claims that are asserted against you personally.
Transfer Property to an LLC
When you have a Limited Liability Company, it may be advisable to transfer your property to an LLC for tax reasons and for liability reasons.
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.
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.
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.
Transfer Deed to LLC
To transfer a 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.
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.
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 Put My House in a Trust or LLC
The simple answer to whether you should put your house in a Trust or LLC is – 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.
Transfer 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.
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 for 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 general or special, to transfer the property.
Contact your CPA or other tax professional to determine which is better for your circumstances, an LLC or a trust. The documentation and procedure is similar for both.
Transfer Property From an LLC to an Individual
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.
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.