It is best to title your Baltimore rental or investment property into your LLC when you purchase it. Why? If you take title in your own personal name, your loan, your title insurance policy and your hazard insurance policy will also be in your personal name. A subsequent transfer to an LLC may have certain negative consequences if you are not careful. Three potential negative consequences are detailed covered below.
First, when you transfer your Baltimore rental property to your LLC after taking out a loan in your own name it may trigger the due on sale clause set out in your loan documents. What does this mean? It means that your lender may accelerate the loan and demand immediate payment in full. If you are unable or unwilling to pay the loan off your lender may file a foreclosure to force you to do so and this may result in you losing the property.
Second, in regard to your title insurance policy, it may be necessary to have an additional insured endorsement issued so that the protections afforded by the policy are not terminated. In certain circumstances it may be necessary to place a new title insurance policy.
Finally, the concerns that are raised with title insurance also extend to hazard insurance but are easier to correct. If you fail to change the hazard insurance policy post transfer and someone is injured on your property it is possible that the insurance company will deny coverage and you could be held responsible for a judgment.
These are just a few details to consider when purchasing and titling a Baltimore rental or investment property. Each situation should be evaluated based on the details of that particular transaction so if you have any questions please contact our Baltimore real estate attorneys at Heise & Heise, LLP for a full review.
