You can transfer a mortgaged property to an LLC, but doing it without your lender’s written consent lets the bank demand the entire loan balance at once. Federal law protects several kinds of ownership changes from that consequence; a transfer to an LLC is not one of them. Before you sign a new deed, you need approval from your mortgage servicer, the right paperwork, and a clear picture of the tax and insurance fallout.
What the Due-on-Sale Clause Does
Nearly every residential mortgage contains a due-on-sale clause. It lets the lender demand the full remaining balance if you transfer any ownership interest in the property without prior approval. The standard Fannie Mae and Freddie Mac security instruments put this language in Section 18.
If you move title to an LLC without consent, the lender can accelerate the loan. Under Fannie Mae’s servicing guidelines, the servicer gives 30 days’ notice to pay the balance in full or qualify for a new loan; if neither happens, foreclosure proceedings begin.1Fannie Mae. Enforcing the Due-on-Sale (or Due-on-Transfer) Provision The Garn-St. Germain Depository Institutions Act of 1982 gives lenders the right to enforce these clauses and preempts state laws that would say otherwise.2Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
Why an LLC Transfer Is Not Protected the Way a Trust Transfer Is
Garn-St. Germain lists nine specific transfers where a lender cannot invoke the due-on-sale clause on residential property with fewer than five units. Those protected categories include moving the home into a revocable living trust where you remain a beneficiary and continue living there, adding a spouse or child to title, transfers resulting from death or divorce, junior liens like home equity lines, and leases of three years or less without a purchase option.2Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
Transferring the property to an LLC, even one you wholly own, is not on that list. This is the point most investors get wrong. The trust exemption does not extend to LLCs by analogy. Without lender consent, the bank has the legal right to call the loan.
How to Get Lender Consent
Write to your mortgage servicer and request permission to transfer the property to your LLC. Some servicers routinely approve these requests for asset-protection transfers when the original borrower remains a member of the LLC and stays personally responsible for the loan. Others may require a formal assumption agreement or a processing fee.
Have your LLC’s Articles of Organization, operating agreement, and IRS-issued Employer Identification Number ready when you reach out. The servicer wants to confirm that you control the entity and that the transfer does not increase the bank’s risk. Ask for the approval in writing and keep that letter with your permanent records. It is your proof, if servicing changes hands or policies tighten later, that the transfer did not breach the loan.
If the Lender Says No: Refinancing
If the servicer refuses, the main alternative is refinancing the mortgage into a commercial loan held by the LLC. Commercial loans typically carry higher interest rates than residential mortgages, and closing costs can be significant. The math works best on investment properties where rent can absorb the higher debt service.
Before you commit, compare the full cost (higher rate, closing fees, and any prepayment penalty on the existing loan) against the liability protection the LLC actually gives you. On properties with thin equity or modest rental income, the added expense can outweigh the benefit.
The LLC Does Not Get You Off the Mortgage
Changing the name on the deed does not change the name on the loan. The mortgage is a personal obligation you signed, and transferring title does not release you from it. If the property is foreclosed and the sale falls short of the balance, the lender can pursue you personally for the difference in states that allow deficiency judgments.
Even a refinance into a commercial loan under the LLC usually requires you to sign a personal guarantee. You remain just as responsible for the debt as before. The LLC can shield you from certain liability tied to the property itself, such as a tenant’s injury claim, but it does not shield you from mortgage debt you have personally guaranteed.
Choosing the Deed and Preparing It Correctly
The two common deed choices are the quitclaim and the warranty deed. A quitclaim transfers whatever interest you have without any promise that the title is clean. A warranty deed goes further: the grantor guarantees the title is free of undisclosed liens or claims. For a transfer to your own LLC, either can work, but the choice affects your title insurance (more on that below).
Whichever deed you use, it must contain:
- The full legal description, copied exactly from your original purchase deed or tax records. A street address alone is not enough.
- The LLC’s exact legal name as it appears on file with your state’s Secretary of State.
- The LLC’s EIN, which helps verify the entity for recording and tax purposes.3Internal Revenue Service. IRS Publication 1635
- A signer with documented authority to act for the LLC under the operating agreement.
Confirm the LLC is in good standing before you record. If annual reports or filing fees are overdue, the state may have administratively dissolved the entity, meaning you would be transferring property into something that no longer legally exists. Many counties also require a preliminary change-of-ownership report or similar disclosure alongside the deed; filling it in correctly keeps the clerk from rejecting the filing.
Title Insurance After the Transfer
Your existing title policy may not automatically cover the LLC. With a quitclaim deed, the policy can stop protecting the new titleholder because quitclaims carry no warranties. A warranty deed generally preserves coverage because the grantor retains liability for title defects.
If you are the sole owner of the LLC, many title insurers will treat the existing policy as still in force without additional action. When other people hold membership interests, you may need an endorsement naming the LLC as an additional insured. Call your title company before recording so you know what is required. A paperwork oversight that drops your coverage can be very expensive if a title defect surfaces later.
Recording the Deed
Once the deed is signed and notarized, file it with the local office that keeps land records, usually called the County Recorder, Registrar of Deeds, or Clerk of Court. Submission is typically available in person, by mail, or electronically. Recording fees vary by jurisdiction and generally run from about $10 to $50 for the first page, with additional pages costing extra.
The clerk stamps the document with a book-and-page or instrument number and returns the original within a few weeks. That stamped deed is public notice that the LLC holds legal title. Keep it in the LLC’s permanent file; you will need it for any future refinance or sale.
Transfer Taxes and Property Tax Reassessment
Some states and counties charge a real estate transfer tax when a deed is recorded, calculated as a percentage of value or price paid. Rates range from zero in states with no transfer tax up to around 3% in states with progressive structures. Many jurisdictions offer an exemption for transfers to a wholly-owned LLC because no real sale has taken place, but you usually have to claim the exemption at filing. It is not applied automatically.
Property tax reassessment is a separate question. Some assessors treat a transfer to an LLC as a change of ownership and reassess the property at current market value, which can raise your annual bill if the home has appreciated. Others exempt transfers where the same person retains full beneficial ownership through the entity. Check your local assessor’s rules before you record.
Federal Tax Treatment
The federal picture depends on how the LLC is classified. A single-member LLC is a “disregarded entity” by default: the IRS ignores the LLC and treats the property as still owned by you personally.4Internal Revenue Service. Limited Liability Company (LLC) The transfer is not a taxable event. Your basis carries over, and you keep reporting income and expenses on your personal return.
If the home is your primary residence, IRS regulations treat a residence held in a single-owner disregarded entity as owned by the individual for purposes of the Section 121 capital gains exclusion.5eCFR. 26 CFR 1.121-1 – Exclusion of Gain From Sale or Exchange of a Principal Residence You can still exclude up to $250,000 of gain, or $500,000 for married couples filing jointly, when you sell, provided you meet the usual two-out-of-five-year ownership and use test.6Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
A multi-member LLC defaults to partnership tax treatment unless it elects corporate taxation on IRS Form 8832.7Internal Revenue Service. LLC Filing as a Corporation or Partnership A transfer to a partnership-taxed LLC generally does not trigger gain recognition. A transfer to an LLC that has elected C- or S-corporation treatment is treated as a sale to the entity and can trigger capital gains tax and depreciation recapture.
Updates to Make After Recording
Recording the deed is not the end of the job. Several accounts need to catch up with the new ownership.
- Send your mortgage servicer a copy of the recorded deed so their records match. Otherwise, your year-end Form 1098 reporting mortgage interest may be issued under the wrong name or taxpayer ID.8Internal Revenue Service. About Form 1098 – Mortgage Interest Statement
- Contact your property insurer to name the LLC as the insured or an additional insured. A policy that still lists only you personally can be grounds for a denied claim once you no longer hold title.
- If the property is rented, move utility accounts and tenant leases into the LLC’s name. That reinforces the legal separation between you and the entity.
Ongoing LLC Costs to Weigh
Holding property in an LLC creates recurring obligations. Most states require an annual or biennial report and a filing fee. Fees range from $0 in a handful of states to over $800 in the most expensive, with most states under $100. Miss the deadline and the LLC loses good standing and can eventually be administratively dissolved, leaving the property owned by an entity that no longer legally exists.
Expect to maintain a separate bank account for the LLC, a registered agent in the state of formation, and possibly a separate tax return if the LLC has more than one member. Weigh these ongoing costs against the asset-protection benefit before you move title, especially on a property that generates little or no income.