There will be no profanity in this post, just in case you get the cultural reference in the title. I won’t even repeatedly scream at you. Instead we’re going to cover a topic that sidesteps injustice, drama or even frequent occurrence, but it deals with a scenario that comes up occasionally and when it does, there is quite a bit we should know before taking action. So let’s talk about closing a residential real estate transaction in the name of an LLC or other business entity, like a partnership or a corporation. Can you do that? What’s different and where does one start the process?
[Too lazy to read the rest? Watch the video instead!]
Guarantee, Guarantor, Guarantas
The first two words above, anyway, are the key concept here. It is indeed possible for a one- to four-unit residential property to be closed or vested in the name of a business entity, but when this happens, essentially what’s transpiring on the lending side is that one or more of the business owners are using their personal income, asset and credit profile to guarantee the loan on behalf of the entity. So, in essence, the “borrower” becomes a “guarantor.” Again, critical to grasp the concept that the business itself is not the borrower(s). If that were the case, we’d be talking about a commercial loan and not a residential mortgage, as here.
Wage Against the Machine
Consistent with a traditional mortgage for a traditional borrower with a traditional credit profile, our business entity borrower will have to provide an additional layer of documentation pertaining to the business itself. When vesting or closing in the name of an LLC, partnership or corporation, the owners of the business, if not the same as the borrowers/guarantors for our loan, will need to provide articles of incorporation, partnership agreements and other forms and questionnaires to support that the owners are all aware that a mortgage is being taken on the subject property. Perhaps most importantly, when seeking to obtain a loan in the name of a business entity, expectations need to be set up front to assure that the “borrowers” as well as the other majority owners in the business understand what will be involved.
So yes, we can close in an LLC. We can close in a partnership or corporation too. But we have to view things differently from Day 1 in order to get it right and our clients must understand what will be expected of them and their co-owners. With the new tax laws and with an increasing number of real estate investors holding their properties in an entity for both legal and tax purposes, closing in an LLC or other entity is becoming more common. If you have questions about how to efficiently get a mortgage in the name of such an entity, let me know how I can assist.
Some of those that work forces,
Robert J. Spinosa
Vice President of Mortgage Lending
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
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