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Can a Mortgage Loan Close in an LLC?

A mortgage is a big investment and might also be considered a liability, especially in the case of a rental home.  In this situation people commonly ask if they can close their mortgage in a limited liability company (LLC) or a corporation. 

An LLC or corporation creates separation between personal and business assets while removing the burden of liability from the natural person-- the flesh and blood human. This is a wise tool to employ but if your mortgage is destined for the secondary market the answer is no.

Here is what Fannie Mae says about it:

“Fannie Mae purchases or securitizes mortgages made to borrowers who are natural persons...”

Courts historically conclude that corporations are people

While this may be true, the operative word is 'natural' which is defined as a human being, not an artificial or juristic person.

Fannie Mae requires recourse against a real-life human in the event the loan goes into default. A mortgage loan is big money on both sides and, like you, Fannie must protect it. Placing a property in an LLC or corporation complicates the foreclosure process. Because Fannie will not purchase it, lenders will refuse to close a loan in this fashion . This is an industry practice.


Can I transfer ownership to the LLC after I've closed?

This is a legal question and you should consult an attorney. However, here is the language present in a typical mortgage/deed of trust:

“If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument.”

If you must place the property in an LLC or corporation, seek out a commercial lender. They specialize in lending money to legal entities.

Commercial rates and terms are less favorable.

Lenders believe that lending money to an artificial or juristic person presents greater risk. This translates to higher rates and less favorable terms. So, you must decide whether the burden of personal liability is worth the difference in rate and term. Just know that by placing your natural person on the alter of accountability, you might garner more favorable terms.



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