Tuesday, March 10, 2009

Property Transfer

Recently questions about Property Transfer were asked on The Property Source group discussion board on Facebook. Just in case some of you are the few you don't frequent Facebook, I am reposting the Q&A here.

Questions:

I'm interested in transferring property into my company name. I don't have a complete understanding on how that's supposed to work. So here we are, looking for a little direction in this area. The title needs to be transferred into the company’s name. Would a Warranty deed be used for the transfer the property? Or would a quit claim deed be used? Once the transfer is complete, the company will now be listed as the grantee. Right? Would the property taxes, now be sent to the company? Would I be able to deduct any and all repair or upgrade cost as business expenses?Would I still be able to receive the various tax incentives for home ownership or would that be negated due to the home being listed under the company?If not would the company receive these benefits?How many properties can I transfer under the company name?No rush on this, great idea for this board. Always be selling. Korrey

Answers:

The first thing I’d recommend is consulting a real estate lawyer as well as a tax adviser. They’ll know the laws and can ensure everything is done properly and that title is actually being transferred.

Here are some suggestions though.

Quit Claim Deed-a deed that conveys any interest the grantor may have in the property at the time of the execution of the deed, without any warranty of title or interest.

Warranty Deed-a deed that expressly warrants that the grantor has good title; the grantor thus agrees to defend the premises against the lawful claims of third persons. The person who transfers the property is called the ‘Grantor’. The person/entity the property is transferred to is called the ‘Grantee’.

Though some say a quit claim is sufficient, you will probably want to do a warranty deed (vs. a quit claim deed) which will need to be prepared in the company’s name, filed and recorded in the appropriate office located in the jurisdiction in which the property(s) is located. This is usually at the county recorders office. The deed then must be signed by the person or entity transferring the property and will require notarization. You will be named the grantor, the company named the grantee.

Also, do you have a mortgage on your property? If the loan is not paid in full prior to or at the time of transfer, the deed will only transfer subject to the mortgage. You will need to look at your loan documents to see what conditions, restrictions and limitations it may have on your ability to transfer the property without having to pay the loan off. Almost all mortgages have “due on sale clauses”. Technically moving the property to an LLC, corporation, or limited partnership is considered a “sale.” You will need to negotiate with your lender to attempt to transfer the loan and the mortgage to the LLC. Sometimes they let this slide if you are the owner of the property and the sole owner of the company, but if not you made be made to refinance or acquire a new loan. Another thing to consider are the potential taxes you may have to pay. Any profit made on the “sale” of a house is subject to being taxed. Transfer can also trigger a property tax reassessment at the current market value. Consult your tax guy about this.

Now some people just make the title change and don’t tell the bank but there is a possibility that doing so may come back to bite you. The mortgage company will eventually figure out title to the property has been changed because the tax notices are now in the name of your company. You’ll also want to make sure you have your insurance in order. You’ll need to make sure you’re property is insured under the company name. In terms of deductions for any and all repairs/improvement costs as business expenses, and various tax incentives I would advice you to consult a tax adviser. They can provide the details of what you can deduct and how much. One thing to keep in mind that and incentive programs you look into as a personal homebuyer can be looked into under the company as well. The programs will probably have specific guidelines for companies applying for their incentives.

I believe you can transfer as many properties as you want into the company name. There is a such thing as a Series LLC's which are generally of interest to individuals who have several large assets (such as multiple properties) for which they desire to maintain separate liability protection. I do not think this is allowed in California though.

Hope this helps...

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