Posted on: July 25th, 2018

A growing trend among prospective homeowners is to purchase a home, especially rental homes, in the name of a limited liability company, or “LLC.” Business owners favor LLCs for the liability protection they provide in the event of a lawsuit. For example, if someone is injured at John Smith’s pumpkin patch, John Smith’s personal assets could be at risk. However, if someone is injured at a pumpkin patch owned by John Smith’s Pumpkin Patch, LLC, as long as all corporate formalities are properly followed, the only assets at risk are those in the name of the LLC, not John Smith’s personal assets. These same protections can apply to individuals who purchase a home in the name of an LLC. This can be especially important for individuals who own rental homes, where the potential risk can be greater.

LLC’s Provide Homeowners with Privacy
With today’s technology, people can enter a name on a county assessor’s website and instantly find every piece of property titled in that person’s name. Purchasing a home with an LLC can provide individuals a layer of privacy if they do not want people to know where they live or other properties they own. For example, if you search for a parcel of property, and the property is owned by an LLC, the name of the LLC will be listed as the owner. The LLC can use a name totally unrelated to your name. While this does not prevent people in your neighborhood from physically seeing you, it can protect you from nosy third parties.

The Downsides to Purchasing a Home with an LLC
Purchasing a rental home with an LLC has some issues. Banks may not lend to a new LLC if the LLC cannot guarantee its credit, and could require an individual guarantee. Although one could purchase a home and then transfer the home to the LLC, many mortgages contain “due-on-sale” clauses where the lender could require the individual to pay the remaining balance on a mortgage the moment he or she transfers the home to the LLC.
Another downside are the costs of setting up an LLC, which can include state filing fees and attorney fees. Additionally, it is important to ensure that all corporate formalities for the LLC are property followed. If corporate formalities are not followed, you risk someone “piercing the corporate veil” and still being held personally liable for property owned by the LLC.

Ultimately, the decision on whether to form an LLC to hold title to property depends on your specific situation. The attorneys at Grefe & Sidney, PLC are here to discuss the benefits and drawbacks with you and help you make a knowledgeable decision on whether an LLC is right for you.

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