Who's the Borrower on a Fourplex Loan?Apr 14, 2021
Who is the borrower on the loan?
These are investment properties and a lot of people say they want to come in and finance the property in the name of their LLC, business, trust, or entity. While it makes sense to take ownership of this type of property, in a fourplex transaction, you want to finance in your own name. This allows you to secure the best kind of financing (a Fannie Mae, Freddie Mac, fourplex loan).
Fannie Mae and Freddie Mac do not lend to entities. This is convoluted with what they see as their foreclosure process. A process that makes it very difficult to lend to entities for these types of financing.
So how do we handle this with our investors? The protocol is that you come in and finance these loans in your personal name. You are on the note and deed for both the construction loan and for the long-term loan.
This allows you to qualify for better financing as opposed to getting a commercial loan. When the property is fully built and refinanced, you can then deed the property to an LLC or a trust.
Do the loan programs and the paperwork allow you to do that?
The closing documents for a Fannie Mae, Freddie Mac loan, is kind of a gray area on who takes title. You'll hear a lot of people say, "Hey, the lender can call the note do."
Our preferred lender has overseen almost half a billion dollars in fourplex loans and connected with some of the best title companies in the country. Between that and a lot of research, they have never seen a lender, Fannie Mae, or Freddie Mac come back and say, "Hey, you did this to an LLC, we're now going to call the note due." From our experience and understanding of the industry, it's just a myth.
What if you deeded the fourplex to an entity or a trust that you had no ownership in at all? There's separation now between the individual who's liable for the mortgage and a different entity. That can become problematic because you don't have any ownership and there's now one step removed from the person who's liable to make the mortgage payment and who owns it.
Make sure that you have a percentage of ownership in the trust/entity from which you want to deed your property. Then if you want to do a cash-out refinance, or if rates drop and you want to do a rate-term refinance, Fannie Mae and Freddie Mac will require you to deed the property back to your name temporarily for that refinance transaction. Then you can deed it back after that.
Our lender has done these hundreds of times both with those who have purchased with the Fourplex Investment Group (FIG) and in his own real estate transactions for the investment properties that he owns.
It's a process that we're very familiar with and we've got wonderful title partners that can help facilitate the process for you.