Is there any downside in refinancing a 19 unit apartment building with a Family Living Trust as the borrowing entity?

Asked over 1 year ago - Los Angeles, CA

I have a 19 unit apartment building that I am refinancing right now. I've always owned this in my person name rather than a Limited Liabiliy Company. The lender is asking what the borrowing entity will be. Short on time now in the refinance window, I am thinking of using my Family Living Trust as the borrowing entity. Is there any downside to having the Living Trust as the borrowing entity? After the refinance, I can always quit claim over to a Limited Liability Company if I decide.

Attorney answers (2)

  1. Michael Raymond Daymude

    Pro

    Contributor Level 20

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    Answered . I seriously doubt if your lender will allow a revocable living trust to be the borrowing entity. If your goal is simply to have your revocable living trust own the property, take title in your own name and then simply transfer it to the living trust, with you as trustee, after the purchase.

    Your question confuses two things: a limited liability company and a "Family Living Trust." You cannot freely transfer property between yourself and an LLC without tax and due-on-sale implications. If your goal is ultimately to have the LLC be the owner, take title in the name of the LLC. You, of course, will have to personally guarantee the loan. “You” includes your spouse if you are married unless only you will be the borrower (guarantor) and record owner.

    A word of caution: You should have an accountant and an attorney review your estate and business plans prior to this new acquisition so that you avoid pitfalls common to DIYers.

    I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for... more
  2. William Richardson Christian

    Contributor Level 12

    Answered . I agree with the prior answer. Keep in mind that while there is a statute preventing loan acceleration for a transfer to your living trust, no such protection exists with an LLC. In other words, your loan documents usually will say the lender can call the loan if you transfer or further encumber the property. A transfer to the LLC is a transcfer that wil let them call the loan, If you plan to use an LLC, make sure they provide consent up front.. And I would certainly use an LLC to hold a 19 unit rental.
    See your attorney!!.

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