Many landowners and real estate investors recognize that holding property in a limited liability company can offer certain asset protection benefits. When are they attainable?
If the property is mortgaged, then it probably can not be transferred to an LLC. Mortgages often contain provisions restricting such transfers, and the LLC is considered to be a separate legal entity. A mortgage secures the borrowed money with the real estate, and lenders typically do not want their collateral to be transferred away to a third party.
If the property is owned free and clear of any loans, then it may be able to be transferred. Liens, judgments, and pending litigation may inhibit the transfer, however.
Assuming there are no encumbrances, one would need a properly formed entity and appropriate documents to effectuate the transfer. The transfer itself is tax-exempt, but the local municipality’s requirements must be met. Without the necessary approvals, the deed can not be recorded to complete the transfer.
In Chicago, these requirements include a certification from the Water Department, and for smaller buildings, the Zoning Department as well. Some municipalities also impose an inspection requirement, or other mandates. Also, some condominium and homeowner associations require notice or fees to approve the transfer. We can help you identify and fulfill these requirements.
When the transfer is completed, the LLC would own the property, placing a level of protection between the assets of the owners of the LLC, and any liabilities generated by owning and operating the property.
If you currently own or are thinking about acquiring rental property or vacant land, call us today to see if you are able to implement an LLC or other asset protection strategy.