Expert: Diann Tonnesen - 12/11/2010

Question
I have a home here in Las Vegas and one in Texas. The home in Texan is a rental property and the one here we live in for now. We might be moving and We will have to rent this property out as well. I was told that we should form a LLC for the two properties. First is that a good idea and second how can we do that if we are upside down on the home here in Vegas? Will the bank approve a loan for a LLC enough to cover the home here? And last is there someone w should talk to here in Vegas about doing this transaction. Thank you.

Answer
Hi Kelly,

Whether or not you should form an LLC is a legal question and you would need to consult an attorney on that. They don't allow us Realtors to answer the legal questions even if we know or have opinions on the answers!  :)

But there are two things from a mortgage perspective that you will need to be aware of.

1. Banks do not loan to LLCs. They will only loan to real individuals based on income, assets and loan to value of the property.

2. Banks won't loan on properties that are upside down.

Since you are living in this home as your primary residence, your best bet is to contact your existing lender and see if they will work with you on doing a loan modification. (Hint, do not tell them you might be moving!)Of course, a loan modification will only be helpful if the payments would be lowered enough that you could rent the house for enough to cover those payments.

Failing a loan modification, you have three choices:

1. Rent the house out and make up the difference each month to pay the mortgage.

2. Let the house go through foreclosure.

3. Sell your home as a short sale. The reason people choose the third option is to get the bank to relieve them from any future liability on the debt. You need an experienced agent to help you accomplish a short sale, and you will need to be prepared to jump through hoops providing documentation again and again. But when a short sale is done, you are able to start over without a huge debt hanging over your head.

I hope that helps a little bit? If you have questions you can always give me a call at 702-596-7821 and we can also chat.