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What is the best way to restructure a rental property from JTWOS to a LLC?

Aurora, CO |

My wife and I have owned a residential rental property in Aurora, CO for 2 years. We purchased the home with an investment property mortgage and both the loan and home title are in our names. We would like to set up an LLC but are not sure how to proceed. Specifically, we are weary that a title transfer would require prior approval from our lender and could prompt them to call the note. Is there a way to structure the LLC to properly transfer risk and leave the existing loan in place?

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Attorney answers 1


You are right to be concerned about triggering the due on sale clause of your loan agreement. Unfortunately, the dilemma can't be resolved through any specific structure of the LLC. Generally, to transfer the property to an LLC without triggering that clause you must get permission of your lender. Some lenders will approve the transfer while others will not.

William Bronchick

William Bronchick


While the lender has the right to call the loan due, they are not likely to do so if the market interest rate is not significantly higher than the rate on the loan. If you ask in advance for permission, they will most likely say "no", and will be looking out for a transfer. If you simply do it and they don't object, they may have a difficult time in the future enforcing the due on sale because of the principle of "laches". In English, this means, "Use it or lose it". In other words, if they don't enforce the due on sale timely, a judge may rule they waived it.

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