Why would the bank request a transfer property out of an LLC and into an individual’s name before approving a short sale?

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Why would the bank request a transfer property out of an LLC and into an individual’s name before approving a short sale?

Listed investment property as a short sale and got an offer. Formed LLC to protect us, especially against sue happy tenants. Bank refuses to complete short sale unless we deed the property out of the LLC and back to us. There is no guarantee that they will accept the current offer as it is very low. Then we will be unprotected. How does it benefit them? How does it hurt us? Do you recommend we do this?

Asked on May 20, 2011 under Real Estate Law, California

Answers:

Mitchell Sussman / Mitchell Reed Sussman & Associates

Answered 10 years ago | Contributor

If the original loan was in your personal name, the bank is requesting you deed it back to yourself

because they typically will only agree to a short sale with the original borrower. If this is not the case and the loan was made to the LLC, I see no reason why they would insist on you deeding to the LLC. Moreover, if the loan was originally made to the LLC you have no risk if the bank forecloses because the foreclosure will be in the name of the LLC.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

No lawyer on this site can recommend for you to do this or not; for that type of legal advice as to a specific course of action, you need to actually engage or retain the attorney.

We can explain why the bank wants to do this; and the reason is precisely that they do not want you to be protected. As you noted, an LLC protects you from liability. The bank is concerned that protected from liability, you have no recourse to not take too low an offer or not do something else that is not in the bank's interest. They want you to have "skin in the game" and put something on the line before they are willing to allow the short sale. If you are personally liable for any resulting difficulties--or the bank generally, if the sale doesn't happen--you are more likely to be careful in what you do.


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