Will moving my apartment building into an LLC trigger the loan's due-on-sale clause?
It can. Federal law lets a lender enforce a due-on-sale clause when the property is transferred, and the list of transfers a lender must allow applies only to residential property with fewer than five units, and does not name an LLC even there. For a building of five or more units, the safe path is to ask the lender for written consent before you sign the deed.
What a due-on-sale clause lets the lender do
Most mortgages say the whole balance becomes due if you sell or transfer the property, or any interest in it, without the lender's consent. That is the due-on-sale clause. Deeding the building from your own name into an LLC you own is a transfer, even though you still control everything, because the owner on the deed changes.
The federal Garn-St Germain Act settles whether these clauses can be enforced. Subsection (b)(1) says that, notwithstanding any state law to the contrary, a lender may enter into or enforce a due-on-sale clause on a real property loan (12 U.S.C. 1701j-3). So whether a transfer to your LLC is a problem comes down to your loan documents and your lender, not to a state rule that might protect you.
In practice, many lenders never call a performing loan over an LLC transfer, especially when rates have fallen. But "they usually do not" is a bet, and the bet gets worse when today's rates are higher than your note rate, because then calling the loan is worth something to the lender.
Why the federal exceptions stop at four units
Subsection (d) of the same law lists transfers on which a lender may not exercise its due-on-sale option. The list covers loans secured by residential real property containing less than five dwelling units (plus co-op shares and manufactured homes). An apartment building with five or more units is outside it, so none of these protections apply to it.
| Protected transfer under subsection (d) | Helps with an LLC transfer? |
|---|---|
| A junior lien that does not transfer occupancy rights | No |
| A purchase money security interest for household appliances | No |
| Transfer on the death of a joint tenant or tenant by the entirety | No |
| A lease of three years or less with no option to purchase | No, but it means ordinary apartment leases are not transfers |
| Transfer to a relative on the borrower's death | No |
| Transfer where a spouse or children become owners | No |
| Transfer to a spouse under a divorce decree or separation agreement | No |
| Transfer into a living trust where the borrower stays a beneficiary | No: a trust is named, an LLC is not |
| Other transfers described in regulations | Only if a regulation covers it |
The list applies only to residential property with fewer than five units. For a 5 unit or larger building, read your note and mortgage and ask your lender; check with your own attorney before you sign a deed.
A decision guide for your building
- If you are about to buy: close in the LLC's name from the start. Most commercial apartment loans are made to an entity anyway, and there is nothing to transfer later.
- If your loan already names the LLC as borrower: nothing to do. The LLC owns the building and owes the loan.
- If you own the building in your own name with a loan: read the transfer section of your mortgage, then ask the lender for written consent before you sign the deed.
- If the lender refuses or wants a fee you do not like: you can wait until you refinance and close the new loan in the LLC's name, and lean on liability insurance in the meantime.
- If the building is free and clear: there is no lender to ask, but still check transfer taxes, title insurance and your insurance policy with the people who issue them.
Example a made-up owner holds an 8 unit building in her own name with a $640,000 loan at 4.25%. Rates for a new loan are around 7%. If the lender called the loan and she had to refinance, the first year of interest would cost roughly $640,000 x (7.00% - 4.25%) = $17,600 more. That is the size of the risk she is weighing against the cost of asking for consent first.
How to ask the lender for consent
- Find the loan number, the servicer's address for notices (it is in the mortgage), and the transfer section of the note.
- Write a short letter: you plan to transfer the property to an LLC you wholly own, the borrower and guarantor stay the same, and you ask for written consent with no change to the loan terms.
- Attach the LLC's formation certificate, operating agreement and a draft of the deed.
- Ask what the lender needs: an assumption, a new guaranty, a fee, or updated title insurance.
- Do not record the deed until the consent letter is signed.
- Keep the consent letter with the loan file and the deed.
What else changes after the deed moves
Taxes may change less than you expect. By default, an LLC with one member is treated as an entity disregarded as separate from its owner, so its activities show on the owner's own return, and for an individual the IRS lists Schedule E among those forms (IRS, single member LLCs). A multi-member LLC is a different case; ask your tax preparer.
- Insurance: put the LLC on the policy as the named insured, and keep yourself as an additional insured if your agent recommends it.
- Leases: the landlord on new leases and renewals is the LLC. Tell tenants in writing who the landlord is now and where rent goes.
- Bank: open an account in the LLC's name with its own tax ID, and move rent and security deposits there.
- Books: start a separate ledger for the LLC on the transfer date, with opening balances for deposits held and the loan.
Where DoorKeeping fits
DoorKeeping is built on one LLC owning one property: each property has its own ledger, bank account, deposits held and profit and loss, and you see every property together. After a transfer, you can send renewal offers and e-signed leases in the LLC's name and email every tenant the new payment details. It costs $2 per unit per month, and DoorKeeping gives no legal or tax advice, so the consent letter and the deed stay with your lender and your attorney.
Sources
- 12 U.S.C. 1701j-3, Preemption of due-on-sale prohibitions (Garn-St Germain Act), read Oct 30, 2026
- IRS, Single member limited liability companies, read Oct 30, 2026
Questions
- Can a lender call my loan if I put my rental in an LLC?
- Yes, if the mortgage has a due-on-sale clause. Federal law lets lenders enforce those clauses, and its list of protected transfers covers only residential property with fewer than five units and does not name LLCs.
- Does the Garn-St Germain Act protect transfers to an LLC?
- No. Its protected transfers include a living trust where the borrower stays a beneficiary, but not an LLC, and the protections apply only to residential property with fewer than five units.
- Do apartment leases trigger a due-on-sale clause?
- For loans on 1 to 4 unit residential property, a lease of three years or less with no purchase option is a protected transfer under federal law. For larger buildings, read your loan documents.
- Will my taxes change if I move a rental into a single-member LLC?
- Usually not much. By default a single-member LLC is disregarded for income tax, so the rental still appears on the owner's own return. Ask your tax preparer about your case.