LLC

What It Means

A limited liability company (LLC) is a legal business entity that can hold Title to real property. In co-ownership, some groups form an LLC to serve as the ownership vehicle — each co-owner holds a membership interest in the LLC, and the LLC holds title to the property. This creates a layer of legal separation between the co-owners as individuals and the property as an asset.

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LLC structures are governed by an operating agreement, which functions similarly to a Co-ownership Agreement in defining each member's rights, responsibilities, financial obligations, and exit terms.

The Financing Problem

The most significant limitation of LLC ownership is financing. Residential mortgage products are designed for individual borrowers, not entities. Properties held in an LLC generally do not qualify for conventional residential financing and instead require commercial loans — which carry higher interest rates, larger down payment requirements, and less favorable terms. For co-buyers purchasing a Primary Residence, LLC ownership is generally incompatible with conventional residential mortgage financing for primary residences.

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Transferring a property into an LLC after purchase typically triggers review under the Due on Sale Clause in the mortgage, which allows the lender to demand immediate repayment of the full loan balance. This makes post-closing LLC transfers a serious risk for co-owners with an existing mortgage.

Why Some Co-owners Still Consider an LLC

The primary advantage of an LLC structure is liability protection. If a lawsuit is filed related to the property — such as a personal injury claim — the LLC limits each co-owner's personal financial exposure to their investment in the entity, rather than their total personal assets.

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LLCs also provide a formal governance framework, including defined procedures for decision-making, profit and loss allocation, and member exits. For co-owner groups with Investment Property arrangements — where commercial financing is already expected — an LLC may offer structural and tax advantages.

Key Points

• A legal entity that can hold property title on behalf of co-owners
• Generally incompatible with conventional residential mortgage financing for primary residences
• Transferring property into an LLC after purchase typically triggers review under the due on sale clause
• Provides liability protection by separating personal assets from property-related claims
• May be appropriate for investment property arrangements where commercial financing is expected
• Involves formation costs, annual filings, and additional tax complexity