Lenders Refuse Mortgage Loans to Limited Liability Companies, LLC

With so many issues, today, involving the spiral of the real estate market and the increase in foreclosures, many lenders are turning down mortgage loan applications. As part of this battle in acquiring real estate, many individuals are turning to their corporation or limited liability corporation (LLC) as an option for gaining approval for their mortgage loan.

Using your limited liability corporation, LLC, may not be the wisest financial decision in terms of real estate. While an LLC is a great way to hold assets, the purchase of real estate, inside of an LLC or trust, may not be an advantageous financial decision.

In today's spiraling mortgage lending market, many mortgage lenders are simply not approving loans for real estate into an LLC agreement. Because of the vast confusion and challenges that are involved in underwriting and documenting the LLC, the greatest issue for the mortgage lender to overcome will be the guarantee that a natural person is assuming the ultimate responsibility for that mortgage should the LLC dissolve.

To understand this issue further, we must look back at the underlying reason many individuals create a limited liability company in the first place. To avoid personal obligation and personal liability, many companies assume LLC status to protect the founders and owners from personal financial failure. As a result, when seeking a mortgage under the name of the LLC, it can be quite difficult for the mortgage lender to place the financial risk back into the hands of the individuals.

In addition to the complexities associated with personal liability on mortgage granted to an LLC, the statues under which an LLC is created will vary from one state to another. With this as an issue of concern, many mortgage lenders are simply not well versed in the dynamics of LLC statutes, let alone the implication of those statutes upon the real estate market which may also vary from one state to another.