Is it possible to transfer a rental property into a corporation?

Here’s the question:

Randy asks,

“Is it possible to transfer a property into a corporation and out of my name? I have several mortgaged rental properties that are worth less than I owe, and an investment company has offered to take over the properties, although the loans are not assumable.

Any options here?”

My Answer:

Randy,

You can’t transfer any of the properties out of your name into a corporation without triggering the “due on sale” clauses that are included in most mortgage notes. Once you sell or transfer any and/or all interests in secured property, the mortgage note can be called in total.

Will that actually happen in today’s mortgage climate? Probably not, but you may not want to take that risk.

Since the mortgages are non-assumable, the only legitimate way to cover yourself is to actually sell the properties to the buyers who pay off your mortgages at closing. They’ll have to get new loans, and you’ll have to come to the table with the short fall.

I know that’s not what you want to hear, but until the rental property values return, it’s the only legitimate way.

If this is unacceptable, simply lease to them with an allowed sublease clause. Don’t bother with a “lease option” agreement as that can be construed as “transferring your interests” as well (same goes for a land contract)….just lease. If they don’t pay you can evict…quick and clean.

Thanks for the question!

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Tags: Due on Sale • Real Estate Investing • Rental Property